No respite for consumers despite drop in inflation

No need to be excited –Okeke, Chizea

For a third consecutive month, inflation, an economic term which is commonly described as “the rising cost of living”, has recorded a drop in Nigeria. The monthly figure published by the National Bureau of Statistics (NBS) showed that inflation decelerated to 17.75 percent in June as against 18.12 percent registered in April.

Put differently, the headline Consumer Price Index (CPI) also known as inflation, recorded a 0.37 basis points drop in three months. Ordinarily, the figure would suggest that consumers would begin to experience some succour from the biting effect of inflation but the reverse is the case as financial experts explained that the drop recorded so far is too insignificant to make a difference on cost of living.

A Lagos-based Economist, Marcel Okeke, says it amounts to a mere euphoria for anyone to begin to celebrate the announcement of a declining inflation in the country because it is too marginal to make any difference in the lives of consumers. He argued that the figures on inflation being published by the NBS remain purely an academic exercise as prices of commodities have remained high even going up.

His words: “The so-called drop in inflation is too marginal to make any impact. The current inflation still remains 18 percent if you round up the figure. Nothing has really changed. If you go to the market to buy anything there is no price of anything that has dropped. During the Sallah, prices of foodstuff that have been major driver of inflation has continued to go up. No one should celebrate that inflation is going down at this margin because it amounts to a mere euphoria when consumers do so.” When responding to enquiries from Saturday Telegraph about what the declining inflation trend holds for Nigerians, Dr. Boniface Chizea, a financial consultant and Managing Director of BIC Consult sounded not enthusiastic, describing the current economic environment of the country as awkward and that which defies all economic logics.

“We are in an awkward situation- a situation that defies all those text book things. For me, it doesn’t excite me anymore,” he lamented. Chizea expressed reservation in the possibility of the CBN to achieve a target of single digit inflation which Governor Godwin Emefiele said it will make to happen but that has been elusive in seven years that he has been head of the Institution.

“The CBN has always targeted a 9% inflation rate but is it achievable?”, he queried. It would also appear that the future of the economy of Africa’s biggest economy is uncertain as Chizea disclosed that nothing at the moment is predictable, including inflation and key monetary parameters which the CBN presides over. “Nobody can predict when they are going to achieve a single digit inflation in these circumstances that we have found ourselves.

We are in a situation now that it is difficult to look ahead. For instance, if the fuel subsidy is removed as being proposed, inflation will spike again. And if we continue the way we are, considering the uncertainty in oil price, resurgence of Covid- 19 which will likely reverse the productivity we have gained in the past few months, the situation will grow worse.”

Chizea is of the opinion that government is not doing enough to acquire enough vaccine to mitigate the expected impact of the new COVID-19 variant that has been adjudged deadlier. The Chief Executive Officer of Economic Associates, Dr. Ayo Teriba, identified devaluation of the naira as a major factor that has continued to push up inflation as he said that inflation in Nigeria is largely cost-push. He said: “If you heard the recent episode of devaluation, then inflation spiking is no news.

The devaluation tells you that there will be pass through from exchange rate to inflation. Apart from treating the devaluation as the news, what happens as a result is no news. You must notice that since last year, we have had rows of devaluations. The exchange rate which the average Nigerian uses is the Bureau De Change (BDC) which is official because Central Bank licensed them to do business. The premium the BDCs has offered compare to the rate from the CBN over the years has been as large as N100 per dollar. So, when you see the BDC exchange rate loses value you should expect that is going to impact inflation.”

Beyond the CBN’s reach

There seems to be a consensus among the experts, and that is the fact that the Central Bank alone cannot control inflation in any economy. They are of the opinion that the burden of tackling the menace of rising cost of living rests on both the fiscal and monetary authorities. Okeke identified some factors which are within the reach of the CBN to control to include the rising price of fuel, electricity, among others.

“So, when energy price goes up internally, it affects the cost of distribution of goods and services locally and that comes back to the consumer. And that affects his disposable income (capacity to spend or consume). It means your disposable income is weakened and you no longer can consumer as much as you used to because you can no longer afford to do so. As it is at the moment, it is beyond the powers of the monetary authority to handle.” On his part, Dr. Chizea noted that the only instrument in the powers of the CBN to direct is Interest Rate, reiterating that taming inflation is largely beyond the powers of the apex bank. He noted that in the Nigerian context, the burden is much on the CBN from the fiscal authorities (government). He disclosed that incessant borrowing by government from the CBN is fuelling inflation.

“They are actually adding to it as they are printing money to drive growth in some sectors of the economy. They are not supposed to be printing money to fund the Fiscal Authority but they don’t have any option because there is crisis in the land. It is easy to say they must pay back what was given them before they get another but in a crisis situation like this, what can the CBN do?”

A glimpse of hope

Despite the ugly picture painted by the financial experts, there appears to be a ray of hope for the revival of the economy especially as it pertains to boosting the purchasing power of consumers. Dr. Teriba who strongly warned that discussing exchange rate and inflation is a waste of time because it amounts to treating symptoms rather than the causes, said some of the ways out for Nigeria should be to earn more foreign exchange thereby increasing our foreign reserves threshold to a level that supply would meet demand, if not exceeding demand. “That is the only time the exchange rate would be stable.

The ultimate answer is to convert local assets to raise foreign liquidity,” he reiterated. Mr. Okeke would not agree less with Teriba as he said said effective diversification of the economy will help Nigeria to earn more foreign exchange from others sources apart from oil.

He argument “The point is not moving away but achieving Effective Diversification in our economy. We must encourage the other foreign exchange earning sectors to do well so we can get more forex which will reduce the pressure on the naira. Just as we earn forex from oil, we must equally earn from exporting other commodities like Cocoa, Palm oil, Gold, Tin, Rubber, and Groundnut in commercial quantities, that way the external factors will be handled. But taking care of the external factors alone will not suffice as other internal factors like security is contributing to the rise in inflation as farmers are no longer secured enough to carry out their farming activities. And even when they do, some of the farm products are intercepted by bandits on transit leading to shortage of supply into the market which consequently leads to rise price of items.”


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