The Lagos Chamber of Commerce and Industry (LCCI) has disclosed that broad-based harmonisation of fiscal and monetary policies are the best options towards addressing the identified structural constraints that will significantly help to moderate inflationary pressure in the medium term in the country.
The Director-General of the LCCI, Dr. Muda Yusuf, disclosed this to New Telegraph, saying that the chamber expected headline inflation to remain elevated as the combination of food supply shocks, FX policies, higher energy costs, FX illiquidity, heightened insecurity in major food-producing states would continue to mount pressure on domestic consumer prices this year.
According to him, structural factors have been constraining declining productivity across sectors (especially the real sector) in the country following the adverse effects of COVID-19 that plunged most sectors into recession which aggrevately put Nigeria’s gross domestic product (GDP) into recession since Q3’20. While speaking on the outlook for inflation in year 2021, Yusuf said: “Looking forward into year 2021, we expect headline inflation to remain elevated as the combination of food supply shocks, FX policies, higher energy costs, FX illiquidity, heightened insecurity in major food-producing states, will continue to mount pressure on domestic consumer prices.
We believe a broad-based harmonisation of fiscal and monetary policies towards addressing the identified structural constraints will significantly help to moderate inflationary pressure in the medium term. “Headline inflation has been on the upward trajectory since August 2019.
With average inflation rate at 12.89 per cent between January and November 2020, much higher than full year average of 12.15 per cent in 2018 and 11.39 per cent in 2019, points to intense inflationary pressure in year 2020. “Structural factors which constrain productivity across sectors (especially the real sector), decline in agricultural output, exchange rate depreciation, higher energy costs (PMS & power), security concerns in key food-producing states, covid-19 disruptions, flooding, climate change issues and high transportation cost were major inflation drivers in year 2020.
“These structural-induced factors are beyond the control of monetary authorities and have made it increasingly difficult for the CBN to achieve its primary objective of price stabilisation.”
It would be recalled that the Manufacturers Association of Nigeria (MAN) had been lamenting the dire consequences of the current inflation rate on manufacturers’ businesses, households and investors. In particular, MAN emphasised that the current inflation rate had kept the cost of production elevated for businesses with consequent impact on their ability to grow profit. Similarly, the uptrend in inflation has equally widened the negative real return rate on investment in the capital market, thereby making the Nigerian investment environment unattractive to foreiginvestors. Acting Director-General, MAN, Mr. Ambrose Oruche, in a chat with New Telegraph in Lagos, said that the inability of the Federal Government and the Central Bank of Nigeria (CBN) using fiscal and monetary policies to curtail inflation had resulted to dire trajectories in manufacturing sector’s cost of production, businesses and investment.
The MAN acting directorgeneral explained that the sustained pressure on domestic prices continued to weaken households’ purchasing power with unsold goods’ inventories surging daily. Oruche noted that with the current inflation rate, the economy would continue to struggle with the dire consequences in businesses, trade, investment and investors’