By James Emejo in Abuja and Nume Ekeghe in Lagos
The latest report on inflation in Nigeria has elicited reactions from stakeholders with analysts urging the federal government to ensure that stimulus packages get to farmers to enhance the production of food locally so as to curtail inflation, which rose to a two-year high of 12.34 per cent in April.
The last time inflation was around this level was in April 2018 when it was 12.48 per cent.
The Consumer Price Index (CPI), which measures inflation further increased to 12.34 per cent (year-on-year) in April compared to 12.26 per cent in the preceding month, according to the statistics released by the National Bureau of Statistics (NBS) last week.
To this the end, experts said it was necessary to stimulate farmers to boost food production considering that the borders may not be opened anytime soon due to the impact of the COVID-19 pandemic.
Commenting on the inflation outcome and its implications on monetary policy, Professor of Finance and Capital Markets at Nasarawa State University, Prof. Uche Uwaleke, told THISDAY that inflationary pressure should be expected in view of the border closure and increased demand for food on the back of the COVID-19 lockdown.
He added that the rate of increase in food inflation could have been higher if the federal government had not released grains from the country’s strategic reserves during the lockdown put in place to contain the spread of the virus.
Uwaleke, a former Imo State Commissioner for Finance, said: “The rising inflation rate poses a challenge to monetary policy, especially in the face of the need to stimulate economic activities through a lower interest rate environment and rescue the economy from recession.
“So, it puts the Central Bank of Nigeria (CBN) in a dilemma and I expect the MPC to weigh the balance of risks in favour of economic growth in their next meeting.
“Because the impact of COVID-19 on the economy will feature prominently in the next MPC meeting, my expectation is that members will vote to retain all the parameters, including the MPR at 13.5 per cent to take care of rising inflation and the pressure on exchange rate except the Cash Reserve Ratio, which may be dropped from 27.5 per cent to possibly its previous level of 22.5 per cent to allow the banks more liquidity room.
“I sense the CBN governor may seize the opportunity of the meeting to announce some heterodox measures aimed at aiding financial intermediation by the banking sector.”
Also, the Head of Research at Agusto Consulting, Mr. Jimi Ogbobine, said: “The inflation figures are triggered by three major factors – firstly is that we are just recovering from the lockdown, curfew, and ban on interstate movement.
“And that affected food prices in different parts of the country, especially when you look at the fact that food is produced in the Middle Belt and up north and then transported to the south.
“One of the upsides of inflation is that fuel prices have currently dropped due to the overall drop in crude prices and Nigeria’s new policy of a monthly review of prices.
“Long-term inflationary risks are still there. And one of the long-term inflationary risks is the value of the naira, especially when you look at the parallel market and the official market where there is still a widening gap.
“And as many small and medium scale enterprises resort to the parallel market of their goods and series, especially when importation commences, it could portend higher inflationary risk. So, the apex bank has to ensure stability in the foreign exchange market to moderate inflation risks in the later part of the year when we see an improved return to normalcy.”
On his part, the Head of Research, Afrinvest West Africa Limited, Mr. Abiodun Keripe, also called for increased support to food production.
Keripe said he believed the pressure would continue and forecasts an average of 14 per cent for the year 2020.
He said: “The increase was expected and we think this would continue till the half year.
Our outlook for the year is that inflation would average about 14 per cent for the year.
“The increase in VAT, higher food prices due to the continued closure of the land borders, and now foreign currency pressure adding to that rate. So, the increase in the inflation rate is expected and it should continue.”