As Inflation Continues to Simmer Down

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    Obinna Chima writes on the need for policymakers to continue to work towards caging the inflation monster

    Inflation in Nigeria which stubbornly jumped to about 19 per cent in 2017, has continued to trend downward.

    Clearly, high inflation distorts consumer behaviour. It can also destabilise markets by creating unnecessary shortages.

    Similarly, high inflation which is not the desire of any economy redistributes the income of people and brings about weak purchasing power.

    That is why the Central Bank of Nigeria (CBN) and other central banks globally, are never comfortable with this ‘evil.’

    The CBN had adopted restrictive monetary policy as part of efforts to win the battle against double-digit inflation, just as it has intensified its intervention in the agricultural sector.

    In fact, the central bank has left its monetary policy tools, which includes the benchmark monetary policy rate (MPR), the cash reserve requirement (CRR) and liquidity ratio tight in line with its war against inflation.

    The Bank’s tightening bias has also received the support of the International Monetary Fund (IMF), which according to the fund should continue until inflation is within the single digit target range.

    Indeed, CBN Governor, Mr. Godwin Emefiele has never hidden his utter disdain for double-digit inflation.

    “For inflation in Nigeria, the CBN had a target of 6-9 per cent. Unfortunately, it grew to as high as 18 per cent, until we began to reverse it downward and I am hopeful that it is going to go down further.

    “I can tell you that at 18 per cent, Nigerians had been complaining that what are these people (CBN) doing.

    “It got to 18 per cent and we started to take certain actions to reverse it. So, that would tell you that we are adopting our own home-grown solutions and you can see whether it is working or not,” Emefiele had stated.

    He, however warned policymakers in the country not to become complacent nor over-confident, stressing the need for all to continue to work to improve and sustain the pace of recovery.

    “For one, our import bill may have fallen but our manufacturing and agriculture sectors still have a long way to go if we must attain self-sufficiency in those sectors.

    “We must not be quick to discard the restrictive measures which aided our recovery simply because the metrics have improved,” he said.

    He said the central bank would continue to fine-tune its policies and strategies based on its understanding of evolving developments and supported by in-house technical analysis and simulations.

    According to him, the central bank would remain proactive in ensuring that the welfare of Nigerians is optimised at any point in time.

    “As the sentiments improve in the macroeconomy and supported by proactive monetary, trade, industrial and fiscal policies, I expect a continued uptick in GDP growth with a positive spill-over to improved unemployment rate.

    “As policies to strengthen the agricultural and industrial sectors become more emergent, growth in these sectors will rise, further bolstering overall economy.

    “As we entrench and sustain the transparency in the forex market, as forex reserves accretion continues, and market confidence and improved sentiments remain, I expect that the exchange rate will not only be stable but would begin to appreciate against major currencies.

    “The adverse competitiveness outcome which such appreciation may entail would be adequately mitigated by proactive policies to ensure that our balance of payments position is not undermined.”

    He stressed the need for a re-doubling of the strong policy coordination, collaboration and cooperation between the monetary and fiscal authorities.

    “To sustain our recovery the need is greater now than ever for a robust policy coordination between the key aspects of economic policymaking space.

    “In Nigeria, this would include fiscal, monetary, exchange, and trade policies, which must be targeted at protecting farmers to boost agricultural outputs, support local companies and enhance manufacturing and industrial capacities, with a view to diversifying the economy away from oil and fossil fuels,” he added.

    The Latest NBS Report

    For the 18th unbroken month, inflation rate continued a downward trajectory, declining from 11.23 per cent in June to 11.14 per cent in July.

    As of January 2017, inflation rate was at 18.72 per cent.

    However, in the July figures, the National Bureau of Statistics (NBS) said the Consumer Price Index (CPI), which measures inflation stood at 11.14 per cent (year-on-year) in July 2018, representing a 0.09 percentage points drop over the rate recorded in June 2018 (11.23) per cent.

    The 18th consecutive disinflation (fall in inflation) in headline inflation year-on-year also recorded increases in all Classification of Individual Consumption by Purpose (COICOP).

    COICOP is used to classify both individual consumption expenditure and actual individual consumption.
    On month-on-month basis, the headline index increased by 1.13 per cent in July 2018, down by 0.11 per cent points from the rate recorded in June 2018 (1.24 per cent).

    This represented the first-time month-on-month, headline inflation decline since February 2018.
    The percentage change in the average composite CPI for the 12 months period ending July 2018 over the average of the CPI for the previous 12 months period was 13.95 per cent, showing 0.42 per cent point from 14.37 per cent recorded in June 2018.

    The urban inflation rate eased by 11.66 per cent (year-on-year) in July 2018 from 11.68 per cent recorded in June 2018, while the rural inflation rate remained flat at 10.83 per cent in July 2018 from 10.83 per cent in June 2018.
    On a month-on-month basis, the urban index rose by 1.23 per cent in July 2018, down by 0.01 from 1.24 per cent recorded in June, while the rural index also rose by 1.18 per cent in July 2018, down by 0.05 per cent from the rate recorded in June 2018 (1.23) per cent.

    The corresponding twelve-month year-on-year average percentage change for the urban index was 14.33 per cent in July 2018.

    This was less than the 14.71 per cent reported in June 2018, while the corresponding rural inflation rate in July 2018 was 13.64 per cent compared to 14.08 per cent recorded in June 2018.

    The composite food index rose by 12.85 per cent in July 2018 compared to 12.98 per cent in June 2018.
    This represents the tenth consecutive decline in year-on-year food inflation since September 2017.

    This rise in the food index was caused by increases in prices of potatoes, yam and other tubers, vegetables, Bread and cereals, fish, oils and fat and fruits.

    On month-on-month basis, the food sub-index increased by 1.40 per cent in July 2018, down by 0.17 per cent points from 1.57 per cent recorded in June.

    This represents the first-time month on month food inflation has declined since February 2018.

    The average annual rate of change of the Food sub-index for the 12-month period ending July 2018 over the previous twelve-month average was 17.10 per cent, 0.65 per cent points from the average annual rate of change recorded in June (17.75) per cent.

    Agric Intervention

    One of the factors responsible for the moderation in inflation is the central bank aggressive intervention in the agric sector.

    For instance, the CBN recently put the total amount of money disbursed under its Anchor Borrower’s Programme (ABP), a development finance initiative in partnership with the state government and private sector group since the commencement of the programme, at over N55.526 billion to over 250,000 farmers. These set of farmers, according to the CBN, had cultivated over 300,000 hectares of farmland for rice, wheat, maize, cotton, soybeans, cassava, etc, in the bid to enhance agricultural activities.

    The ABP was designed to support small holder farmers by providing them with the requisite training, tools and funds at single digit interest rates, which will enable improved cultivation of key agricultural items such as maize, soybeans, rice, cotton and wheat.

    The programme also provides a ready market for farmers by linking them with credible off-takers and processors of their produce.

    With almost three years into the implementation, the programme had contributed to the creation of an estimated 890,000 direct and 2.6 million indirect jobs.

    Emefiele added, “Let me note at this juncture that this attention to agriculture is by no means a bad strategy. In fact, agriculture can still be used as a key catalyst for creating jobs, reducing unemployment and driving growth in Nigeria.”

    That is why experts have stressed the need to put an end to the clashes between herdsmen and farmers in some states in the country because of its impact on the agric sector.

    “If people cannot go to their farms, it is going to be a problem. And by the way, agriculture is not just crops.

    “So, when you destroy farmland or livestock, it affects crops and livestock. And agriculture is the biggest part of our GDP, so it has a way of slowing down economic activity,” the Statistician General, National Bureau of Statistics, Dr. Yemi Kale warned.