Nigeria’s soaring inflation rate, which jumped to 25.80 per cent in August, has created severe economic shock.
According to the National Bureau of Statistics, the latest inflation figure is the highest since August 2005.
In May, inflation stood at 22.41 per cent, June inflation stood at 22.79 per cent, July was 24.08 per cent, and August was 25.80 per cent.
Although the country’s inflation rate had continued to skyrocket before the fuel subsidy removal policy, the floating of the Naira at the foreign exchange market in June has worsened the situation.
President Bola Ahmed Tinubu, in his inaugural speech on May 29, 2023, said fuel subsidy will cease as it is not budgeted for in the year under review.
Tinubu stood by his word; he phased out the aged-long fuel subsidy in June, leading to the selling of petrol at N600/per litre from N180/per litre.
The development was followed by the introduction of forex reforms, which saw the country’s currency exchanging at N915/$1 at the parallel market as of Monday from N720/$1 in June 2023. At the official market, the exchange rate jumped from N465/$1 to N720/$1 in June same year.
These policies have had a ripple effect on the prices of food, transportation, goods and services nationwide in the last three months.
The increment of fuel pump price and depreciation of Naira at the forex market have been reflected in the country’s inflation rate.
From May to August, Nigeria’s inflation rate jumped by 3.39 per cent; this is compared with the 0.38 per cent increase recorded in June when the fuel subsidy removal and forex reforms were introduced.
Inflation continued to pass through from the exchange rate to the cost of goods and services.
To move against inflation rise, the CBN in July voted to tighten monetary policies with interest rate hiking to 18.75 from 18.50 per cent.
However, the move by the Nigeria Central Bank of Nigeria to address the soaring inflation has not yielded results.
Meanwhile, following the appointment of Olayemi Cardoso as the Governor of CBN, experts are optimistic about a change.
In an exclusive interview with DAILY POST on Monday, Dr Ayo Teriba, the Chief Executive of the Economic Associates, said unless the forex market is stabilized, the country’s inflation will continue to rise.
He noted that the inflation rate rise in Nigeria is not a problem of CBN but of the generality of the country.
“When the June inflation figure came out, people expressed disappointment; they were expecting a jump because fuel subsidy removal and exchange rate were unified in the same month, and they were expecting the impact on the inflation figure. Some of us insisted on the impact.
“The two drivers essentially, the movement of exchange rates at the BDC rate, before unification was N745/$1 but jumped to N925/$1. That is what is passing through into inflation. Mainly the correction in the official window. It was N465/$1 in June but jumped to N720/$1; that is where the inflation comes from.
“As long as Nigeria can’t stem the exchange rate movement, you can’t pump prices, and it can’t control consumer prices. That is not a problem of CBN but of macroeconomics. The CBN can’t do anything unless Nigeria can stabilize the exchange rate.
“It is not the problem of monetary policy management but for the generality of Nigeria. Exchange rate is a sovereign issue, the core of the country. You can’t leave it to the Minister or CBN. It is a country thing. Everybody is involved, led by the President. The major problem is foreign reserve inadequacy. We don’t have adequate foreign reserves.
“It is good news that the President has started to woo foreign investors in his recent trip to India at the G-20 Summit. As long as the foreign exchange is unstable, the Monetary Policy Rate, Cash Reserve Requirement, CRR, and others will be less impactful. Once we put the exchange rate instability to rest, inflation will stabilize.
“It is a question of how long will it take for the jump in the exchange rate to see through to consumer prices”, he said.
On his part, an accounting and financial development Don at Lead City University, Ibadan, Prof Godwin Oyedokun, said the country must move away from the tradition of always tightening monetary policy to address inflation.
“I have always said that you cannot use the same strategy that is not working on inflation. The tightening of monetary policy yielded no results over time by jerking up interest rates.
“I will advise the new CBN Governor not to rush into coming up with a policy; rather, he should review the previous policies. The country should settle down and design what would best work for her”, he said.
Also, Idakolo Gbolade, Chief Executive Officer of SD & D Capital Management, said the federal government and the new CBN Governor should ensure that fiscal policies are properly implemented.
“The new CBN Governor and his team should thoroughly review the policies of the past governor to ascertain the reasons for the consistent failure of his policies.
“However, the policies of the new government as regards subsidy removal and exchange rate liberalization further propelled the inflation rate to increase in August to 25.80 per cent.
“The new CBN Governor should ensure that the government fiscal policies are properly implemented and that there is a synergy between CBN and its supervising ministry. The government needs to energize key sectors of the economy by ensuring that the loan facilities promised by this administration are promptly disbursed to the intended beneficiaries.
“The CBN should ensure enough foreign exchange to meet the Importers and Exporters Window’s needs to reduce the increasing gap between the official exchange rate and the black market.
The various recoveries by this administration should be promptly utilized to implement the government’s agricultural policies to tackle increasing food inflation.
“The new CBN Governor should also curb the excesses of banks that are all out to declare huge profits to the detriment of the economy, by ensuring that banks follow CBN guidelines that would benefit the economy,” he stated.