Again, Experts Seek Coordinated Approach to Tame Inflation

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James Emejo

The headline index seems to be moderating given the measures adopted by the Central Bank of Nigeria (CBN) to stabilise prices. But economic analysts believe a more coordinated approach, incorporating fiscal measures, would reverse the rising streak.

The Consumer Price Index (CPI) which gauges inflation further rose to 18.72 per cent (year-on-year) in January compared to 18.55 per cent in the previous month, according to the National Bureau of Statistics (NBS). This translated to an increase of 0.17 per cent.

With the January inflation, it would be the 12th straight month inflation has increased. While inflation may yet not assume a southward trajectory anytime soon, the pace of increase is closing up.
The NBS had attributed the 0.17 percentage month-on-month increase to increases recorded in all the divisions which contribute to inflation.

The faster pace of growth in inflation during the period under review was in bread and cereals, meat, fish, oils and fats, potatoes, yams and other tubers.
Increases were further recorded in wine and spirits, clothing materials and accessories, electricity, cooking gas, liquid and solid fuels, motor cars and maintenance, vehicle spare parts and fuels and lubricants for personal transport equipment and passenger transport by road.

The continuous rise in inflation means more hardship in the economy which is already deep into recession, worsened by the huge fiscal challenges and corruption.
Notably, the average price per litre of household kerosene paid by Nigerians increased by 87.12 per cent to N433.84 in January from N231.85 in December 2016.

Similarly, the average price for the refilling of a 12.5kg cylinder for Liquefied Petroleum Gas (Cooking Gas) increased by 35.28 per cent to N5,508.16 in January from N4,071.63 in December 2016.
Rising inflation also means that lending rates will continue to increase because creditors including banks will want to put rates above current inflation rate.

Unfortunately, the premise that the harvest season will go a long way to dampen inflation is already faulted as prices continue to soar.
Economic policy analysts, however, believe it may be difficult to tame inflation using tradition tools because it’s more driven by factors than demand.

They agreed that until some macroeconomic issues including infrastructure, unemployment, foreign exchange, among others are addressed, managing inflation may be elusive.
Speaking in an interview with THISDAY on the rising headline index, Associate Professor and Head, Banking & Finance Department, Nasarawa State University Keffi, Dr. Uche Uwaleke, improvement in agriculture and infrastructure will go a long way in changing the current inflation trajectory in the country.

According to him: “The increase in headline inflation to 18.72 per cent in January from 18.55 per cent in December last year should not come as a surprise to any close watcher of inflationary trend in Nigeria especially since January last year when it was just 9.6 per cent, slightly above the CBN threshold of 9 per cent.

“The fact remains that headline inflation, which has been on a northward journey in the last one year, is chiefly as a result of the twin effects of fuel subsidy removal by the government and the forex policy, which the CBN had to adopt in the first half of 2016 in response to plummeting oil revenue.
“While the impact of the former on the cost of fuel, transport, electricity, and food prices has been unfavourable to say the least; the latter, which meant a much higher exchange rate, resulted in high costs of clothing, housing, books, raw materials and also food items.”

Continuing, he said: “These factors, which are largely non-monetary, have remained the key drivers of inflationary pressure in Nigeria in recent time. This is why the CBN appears helpless in taming inflation using the traditional tools at its disposal which are more suited to tackling demand-pull inflation, a situation complicated by economic recession and an illiquid forex market.
“In the present circumstance, a well-coordinated fiscal policy requiring spending in critical areas such as agriculture and infrastructure will go a long way in changing the current inflation trajectory in Nigeria.”

Also, economist and former acting Unity Bank Managing Director, Mr. Muhammed Rislanudenn, said it’s time for change of approach to managing inflation as with negative GDP growth and recession, monetary policy alone could not deal with it.

According to him, “Our inflation was not induced by any demand pressure but rather induced by change in prices of goods due to increased dollar exchange rate leading to cost push and imported inflation. From the NBS latest data, food inflation is assuming a worrying dimension. We are boxed up in a period of reduction in output, rising prices of goods and services as well as unemployment or stagflation. Inflation rate has been rising month on month from 9.6 per cent in January 2016 to 18.72 per cent in January 2017.

“It is time for change of approach to managing inflation as with negative GDP growth and recession, monetary policy alone cannot deal with it.

“Monetary tightening has been in place since early last year with aim of taming inflation and stabilising the exchange rate. Both have defied the pill and continue to head northward with negative effect on output and prices. Solution requires actionable, harmonised fiscal, trade and exchange rate policies.”
“There must be synergy in policies and monetary and fiscal authorities need to come up with policies that complement rather than contradict each other.

“Being an import dependent economy, we must reform our exchange rate policy to facilitate integrity and transparency and support more foreign portfolio, direct as well as diaspora investment thereby supporting liquidity and stability in the foreign exchange market,” he added.