Analysts Urge Policy Review to Reverse Inflationary Trend


Kunle Aderinokun

Following the continued rising of the consumer price index, which peaked at 18.48 per cent in November, for the 13th straight month and the highest in 11 years, analysts have tasked the monetary authority to review its policies with a view to reversing the trend.

According to data from the National Bureau of Statistics (NBS), the November inflation figures reflect a rise of 0.15 percentage points over 18.33 per cent in October. When compared with the pace of increase in October, at 18.3per cent, inflation, which moved up 0.48 percentage points from 17.9 per cent of the preceding month, is reducing the rising streak.

The NBS noted that increases were recorded in all COICOP divisions that yield the Headline Index. “Communication and Insurance recorded the slowest pace of growth in November, growing at 5.61 per cent and 6.76 per cent year-on-year respectively. The Food Sub Index increased by 17.19 per cent (year-on-year) in November, up by 0.10 percentage points from rates recorded in October (17.09 per cent),” it explained.

During the month under review, all major food sub-indexes, according to the bureau, increased with Soft Drinks recording the slowest pace of increase at 7.76 per cent year on year. Price movements recorded by the All Items less farm produce or Core sub-index rose by 18.20 per cent (year-on-year) in November, up by 0.10 percentage points from rates recorded in October (18.10 per cent).

Specifically, it pointed out, during the month, “the highest increases were seen in Housing, Water, Electricity, Gas and Other Fuels, Clothing materials and other articles of clothing, books, liquid fuel, passenger transport by air, motor cycles and shoes and other footwear,” adding that, “on a month-on-month basis, the Headline index increased 0.78 percentage points in November, 0.05 percentage points lower than the rate recorded in October (0.83 per cent).”

Besides, NBS disclosed that, “The Urban index rose by 20.07 per cent (year-on-year) in November from 19.91 per cent recorded in October, the Rural index increased by 17.10 per cent in November from 16.95 per cent in October. On month-on-month basis, the urban index eased by 0.03 per cent while the rural index was also down by 0.05 per cent.”
But analysts in their views frowned on the continued tight stance of the Central Bank of Nigeria (CBN), the monetary authority and called for a review of its policies.

FBNQuest, an investment banking and research arm of FBN Holdings Plc, believed the monetary policy committee of the CBN would “start to cut its policy rate next year as headline inflation slows on positive base effects with effect from February.” According to the company, “The monetary policy committee’s view is that the principal drivers of inflation are supply-side and beyond its influence.”

FBNQuest, which is a firm of analysts, noted that, “Mid-curve FGN bond yields are now about 250bps negative in real terms. For whatever reason, the bid from domestic institutional investors has been soft at the last two monthly auctions.”

Similarly, Executive Director, Corporate Finance, BGL Capital Ltd, Femi Ademola, urged the CBN to relax the monetary policy rates to bring down inflation rate.

Ademola, who did not think it was necessary for Nigerians to worry about inflation anymore since “we are not doing anything about it”, contended that, “it is ludicrous to do the same thing and expect a different result.”

According to him, “Fighting Nigerian inflation with monetary policy tools is ineffective and in fact we are in economic recession now arguably due to the consistent monetary tightening by the CBN.”

“One would expect that having agreed that inflation in Nigeria is not a monetary phenomenon, the CBN would commence monetary easing so as to push liquidity into the system and encourage productivity. But as it is, we are stiffening economic activities and allowing high costs of production to push inflation higher,” he added.

Ademola believed, “Since we are encouraging local production, this is the appropriate time to forget the obsession with exchange rate and build our economy from within by supporting local production using local materials”, lamenting that, “It has been tough for over a year now so it couldn’t be tougher than this if we turn the focus on improving liquidity to the economy.”

Also, the Chief Executive Officer, The CFG Advisory, Adetilewa Adebajo, said “The CBN is to blame for this problem as it should have adopted an inflation targeting approach with its monetary policy.”

According to him, “It keeps on blaming supply side factors outside its controls instead of trying to restore confidence by targeting inflation and managing expectations.
He noted that, “The drivers of inflation is cost push as we all know but we need to know that the growth trajectory is slowing so by Q1 2017 it should be in check,” pointing out that, “High inflation will stunt GDP growth hence the need to reduce inflation to stimulate growth.”

To the Chief Executive Officer, Global Analytics Consulting, Tope Fasua, “We need to be thankful that inflation has only grown at a reduced growth rate.” He, however, pointed out that, “At 18.48 per cent, it is still pretty high, meaning that Nigerians are losing more of their wealth to that phenomenon at an unacceptable rate.”

“Thankfully, the Federal Government targets inflation at 12.5 per cent for the year 2017, which itself may be a tall order considering that we intend to embark on expansionary fiscal policies for that year. Sometimes in economics, it’s about trilemmas and other arcane issues, in other words you cannot achieve the best of all worlds. Inflation may be a phenomenon we will have to keep coping with, but if spending is targeted at deficit units, and we see a fall in poverty rates, it’s something we can bear,” Fasua added.