Analysts Seek Boost in Food Production as Inflation Rises from 11.2% to 11.6%

Analysts Seek Boost in Food Production as Inflation Rises from 11.2% to 11.6%

James Emejo in Abuja and Nume Ekeghe in Lagos

Analysts yesterday urged the federal government to ramp up support for local agricultural production across the value chain as the Consumer Price Index (CPI), which measures inflation again rose to 11.61 per cent (year-on-year) in October, occasioned mainly by increase in the food index.

The experts called on the government to make fundamental interventions aimed at redirecting the energy and resources of the country, particularly human resources and drive output, as a way of responding to current inflationary pressures.

They further attributed the rising inflationary pressures to the continued border closure, which had resulted in demand-push inflation as products from neighbouring countries could no longer reach the Nigerian markets, thereby leading to scarcity.

The headline index rose to 11.61 per cent (year-on-year) in October 2019, compared to 11.24 per cent in the preceding month, according to the National Bureau of Statistics (NBS) data released yesterday.

Food inflation increased to 14.09 per cent in the month under review compared to 13.51 per cent in September.

The NBS stated that the rise in the food index was caused by increases in the prices of meat, oils and fats, bread and cereals, potatoes, yam and other tubers, fish and vegetables.

Also, core inflation, which excludes the prices of volatile agricultural produce, however, slowed to 8.88 per cent (year-on-year) in October, compared to 8.94 per cent recorded in the preceding year.

According to the NBS in its CPI report for the month under review, the highest increases were recorded in prices of cleaning, repair and hire of clothing, hospital services, major household appliances, repair of household appliances, glassware, tableware and household utensils, and garments.

The urban inflation rate stood at 12.20 per cent (year-on-year) in October from 11.78 per cent recorded in September, while the rural index stood at 11.07 per cent in the from 10.77 per cent in the preceding month.

On a month-on-month basis, the urban index rose by 1.15 per cent, up by 0.02 percentage points from 1.13 per cent in September, while the rural index rose by 0.99 per cent in October, up by 0.03 percentage points from the rate recorded in the previous month.

The rebound in headline trajectory is a setback for monetary and fiscal authorities, which had been able to curtail an upward trajectory in recent months.

The rise further dampens the prospects for interest rate cut as well as reduction in the cost of borrowing.

Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, had said recently that the apex bank was not in a hurry to lower the official lending rate known as the Monetary Policy Rate (MPR), until inflation moderates to single digit.

The MPR, which is the rate at which the apex bank lends to commercial banks, is currently at 13.5 per cent.

Inflation had assumed a downward direction in recent consecutive months when it dropped in January to 11.37 per cent from 11.44 per cent in December 2018.

The headline index further reduced to 11.31 per cent in February and 11.25 per cent in March but resorted to the upward trajectory in April when it climbed to 11.37 per cent- and further to 11.40 per cent in May- before falling to 11.22 per cent in June, 11.08 per cent in July, 11.02 per cent in August before returning to 11.24 per cent in September- and now 11.61 per cent.

However, speaking in an interview with THISDAY, yesterday, while responding to the new inflation data, an economist, Dr. Muhammad Rislanudeen, said the upward trend of the index did not come as a surprise as it was largely driven by food inflation as a result of border closure.

This, he said, led to excess demand, “even as the food importation via our neighboring countries fell outside the ECOWAS treaty on rules of origin.”

He said: “If the government ramps up its support for local agricultural production across the value chain, inflation, and specifically food inflation, will be subdued over time with positive impact of supporting local job creation, reducing unemployment as well as poverty.”

He said the banking sector liquidity might also help to cut interest rate with positive impact on GDP that had experienced “crawling, epileptic growth since exit from 2016 recession.”

Also, an economist and former Director General, Abuja Chamber of Commerce and Industry, Dr. Chijioke Ekechukwu, recommended the streamlining of cost of governance and lowering of MPR as part of measures to curtail the challenges posed by rising inflation.

According to him, the rise of inflation to 11.61 per cent does not really constitute a problem, noting that, “this is a seasonal price hike arising from the Christmas season. Demand and stocking for the season have led to an increase in some consumer products.”

He said: “The closure of the land borders will in the short run, cause an increase in certain food items and other items. The supply is under pressure to meet the demand of goods and services. Products that used to pass through the borders to increase supply are no longer coming into the country. This has increased the prices.”

He also linked inflationary pressure to the insecurity in the farmlands which had reduced agricultural produce available for consumption as many farmers had also abandoned their farmlands and settlements.

He said flooding of many farmlands had also affected agricultural output adversely, stressing that by the first quarter of 2020 however, prices are expected to slightly drop, a situation that could also push down the rate of inflation.

Also, Chief Executive, Global Analytics Company, Mr. Tope Fasua, told THISDAY that the government would have to do something fundamental to reset the economy.

He said: “What we are missing direly is growth and development. Inflation at 11 per cent for an economy like ours could be permissible if we are growing the economy at double digit. But at 1.9 per cent growth rate we are digging a grave for this country.

“The inflation rate is being driven by food component. We have seen how the price of rice has continued to rise in spite of government investment.

“Urban inflation was 17 per cent, meaning that the stress is being borne by people living in our increasingly overcrowded cities with implications for security, the environment and investments.”

Similarly, the Head of Research at the United Capital, Mr. Wale Olusi, attributed the trend to the closure of the border.

He said: “The closure of the border is having a full impact. Core inflation remains on the down trend but what we see as far as food inflation is concerned is a very aggressive jump.

“In the month of November, we think the month-on-month is likely to do another 1.1 percent – which would mean that we are likely to see 11.9 percent or thereabout growth in the month of November.

“We believe inflation rate is going to go higher because there is going to be stocking up for December festivities so the trajectory is northward.”

He added that as long as the borders are closed, inflation would continue to go higher.

On his part, the Head Research Agusto & Co, Mr. Jimi Ogbobine, said: “What we are going to see is that eventually yields on government securities would rise because it cannot be below inflation for so long. Inflation is getting higher and yields are dropping, which is against the norm.”

A Senior Lecturer, Department of Economics and Business Intelligence, Lagos Business School (LBS), Dr. Bongo Adi, also attributed the development to border closure.

“I don’t think it is something to worry about because it a short-term thing. Among all policies we have seen, I think the border closure is the one that seriously addresses some of the structural imbalances in the system.”

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