Analysts Seek Subsidy on Food Production, FX Liquidity


•Inflation rises to 13.22%

By James Emejo in Abuja and Nume Ekeghe

Analysts yesterday advised the federal government to subsidise food production in the short term and ameliorate the pressure on the foreign exchange (FX) as inflation sustained its upward trajectory to 13.22 per cent in August from 12.82 per cent in the preceding month.

The analysts noted that the current inflationary pressures were mainly cost-push due to scarcity of FX, increases in food, petrol and electricity prices as well as the general effects of the lockdown of the economy to curtail the spread of the COVID-19 pandemic.

They said the way forward to curb inflation was for the government to tackle insecurity so that farmers could return to their farms, adding that a deliberate policy was also required to promote large-scale mechanised agriculture.

The Consumer Price Index, (CPI) which measures inflation increased by 13.22 per cent (year-on-year) in August compared to 12.82 per cent in the preceding month, according to the report released yesterday by the National Bureau of Statistics (NBS).

This is 0.40 per cent points increase was attributed to increases in all the parameters that determine the headline index.

According to the CPI figures for August on a month-on-month basis, inflation increased by 1.34 per cent in the review period, representing 0.09 per cent rise compared to 1.25 per cent in July

Food inflation rose by 16 per cent in August compared to 15.48 per cent in July, representing a month-on-month increase of 1.67 per cent from 1.52 per cent recorded in the preceding month.

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

Core inflation, which excludes the prices of volatile agricultural produce stood at 10.52 per cent in August compared with 10.10 per cent recorded in July.

The core sub-index increased by 1.05 per cent in August compared with 0.75 per cent recorded in the month under review with the highest price increases in passenger transport by air, hospital services, medical services, pharmaceutical products, maintenance and repair of personal transport equipment, vehicle spare parts, motor cars, passenger transport by road, miscellaneous services relating to the dwindling, repair of furniture and paramedical services.

However, commenting on the inflation outcome, Prof. Uche Uwaleke of the Nasarawa State University said a recent increase in the pump price of fuel presented further downside risks to inflation.

He added that the uptick in the headline index was expected and will likely continue till the harvest season sets in.

He said: “This is particularly so given the fact that the inflationary pressure is coming more from the food component which increased by as much as 16 per cent.
It is not difficult to see where the pressure is coming from.

“The economy is still reeling from the negative impact of COVID-19 on the food supply chain. This situation is compounded by the border closure, increase in VAT, electricity tariffs, stamp duties and upward exchange rates adjustment by the CBN in order to ease the pressure on the forex market.”

According to the former Imo State Commissioner for Finance, “There is also the insecurity challenge affecting the food belts of the country which partly explains the high rate of food inflation, at over 20 per cent, in a state like Kogi.

“The way forward to rein-in inflation is for the government to tackle insecurity so that farmers can return to the farms and put in place a deliberate policy to promote large scale mechanised agriculture. This will involve scaling up interventions in agriculture including through recapitalising development finance institutions such as the Bank of Agriculture.”

On his part, former Director-General, Abuja Chamber of Commerce and Industry (ACCI), Dr. Chijioke Ekechukwu also warned of the ripple effect of the sustained rise in inflation as this had already adversely affected prices of goods and services, creating cost-push inflation.

He told THISDAY:”I am not surprised that the inflation rate has risen up to 13.22 per cent before the end of Q3. This development is arising from the high exchange rate of the Naira to other currencies. The ripple effect of this has adversely affected the prices of goods and services and creating cost-push inflation.

He said the way forward was for the CBN to use all necessary monetary policy tools within its powers to ameliorate the pressure on foreign exchange and force down the rate.

Head of Research Investment Management, Sigma Pensions, Mr. Wale Okunriboye said food prices could be higher in the months ahead and push inflation to as much as 14 per cent in September.

According to him, “Agricultural output over the harvest period in Q4 2020 is likely to be below trend levels,” adding that, “higher electricity tariffs, increased fuel prices, continued naira weakness and inadequate food harvest in September” could further accelerate inflation towards 14 per cent levels.

Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, told THISDAY that the continued inflationary pressure could increase the cost of living, given that salaries/wages had not also adjusted to the headline increase.

He said this could further lead to a reduction in disposable and investible income because inflation erodes spending power.

“The inability to import food will certainly have adverse effects in the short term until local production is able to meet up with demand. The government will need to subsidize in the short term with food especially.”

Moreover, the Head of Research at United Capital, Mr. Wale Olusi said food inflation was likely to worsen in September amid recent directive for the CBN to stop sales of FX to food importers coupled with the existing border closure.

He said: “The core-inflation sub-index will track northwards following the hike in electricity and the move towards full deregulation of the downstream oil sector.

It must be noted that despite the recent resumption of FX intervention sales by the CBN at the spot and futures market, liquidity remains a challenge in the currency market amid worsening trade deficit, a huge backlog of FX demand by FPIs and capital rationing. Bearing the above in mind, month on month inflation rate for September-2020 is unlikely to drop below 1.3 per cent. Thus, our headline inflation rate projection is estimated to come in at 13.51 per year on year.”