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FG falls into deregulation dilemma as 24% inflation worsens poverty

• Stakeholders insist figures are under-reported
•‘Nigerian manufacturers have become endangered species

  • Palliatives will not have any effect this year – AFAN
  • Expert foresees higher interest rate at next MPC meeting
  • We need to look beyond monetary policy for a solution, ICSAN warns

As inflation bites further, mostly from the effects of subsidy removal on the economy, there are concerns about the Federal Government’s ability to sustain its deregulation stance, especially as it considers maintaining a threshold for fuel price in order to check public outcry.
Although President Bola Tinubu yesterday declared that he is not contemplating a reversal of the decision which removed petrol subsidy in the country, insiders note that public outcry and protests by Labour Unions may force the government to reconsider its decision.

There were mixed feelings of worry, frustration and even disbelief yesterday when the National Bureau of Statistics (NBS) released the July inflation data, which pegged the headline inflation at 24.08 per cent, the highest in about two decades.

The disbelief is far from whether the over 100 basis point rise is real. Rather, it points to the opposite – that the sharp speed is slower than what Nigerians expected to see and lags behind market reality.

From May 29 when the age-long fuel subsidy was removed, the cost of transportation has risen by over 200 per cent in some states.

The Guardian reported that transportation increased by an average of 120.6 per cent year on year as at June.
Staple food items also increased sharply in the past three months. For instance, rice has increased by approximately 27 per cent compared to the pre-subsidy removal era.

Bread, another staple food, had also seen an increase of over 20 per cent while beans, tomatoes and other items have varied degrees of upward shift in prices.

Experts, including a former statistician general of the country and head of NBS, Yemi Kale, had predicted at least 30 per cent headline inflation on account of subsidy removal.

When data were better than expected in June with composite inflation stopping at 22.8 per cent, NBS took to X, formerly known as Twitter, to explain that the subsidy impact was not fully captured as data collation ended mid-month – an explanation that raised more eyebrows on the validity of the Bureau’s methodology.

The latest report shows a seven-month consecutive rise in the nation’s inflation rate, defying efforts by the Central Bank of Nigeria (CBN) to keep it down with its various monetary policy measures.

According to NBS the headline inflation rate for July 2023 increased to 24.08 per cent compared to 22.79 per cent recorded in June 2023.

NBS said the rise represented an increase of 1.29 per cent points from the June 2023 headline inflation.
The report said the increase in the headline index for July 2023 was attributed to an increase in contributions of some items in the basket of goods and services at the divisional level particularly the food and non-alcoholic beverages, which contribute 12.47 per cent weighted average.

Other contributors it said include housing, water, electricity, gas and other fuel with 4.03 per cent, clothing and footwear at 1.84 per cent.

To cushion the effects of the subsidy removal, the Federal Government rolled out some palliative measures, including a directive that fertilizers should be made available to farmers and grains should be released from the strategic grains reserve to reduce the prices of the grains in the market.

However, the impacts of the policy statements have not been reflected in the prices of the commodities, which suggests low confidence in the government. Elsewhere, the statements would have triggered instantaneous panic sales and crashed prices.

The CBN, on its part, also raised the Monetary Policy Rate from 18.5 per cent to 18.75 per cent to rein in inflation. But with low financial inclusion and formal credit penetration, the restrictive monetary policy option has also not moved a needle.

Recently, the Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN) advised the Federal Government and the CBN to find other means to rein in inflation beyond raising the MPR.

Speaking at a media interactive session, the President/Chairman of Council, ICSAN, Mrs Funmi Ekundayo, noted that CBN has increased MPR about four times by a total of about 225 basis points this year with little or no impact on inflation.

She said: “This year alone CBN has increased MPR about four times by a total of about 225 basis points. That is huge. But what do we see? Has it had any impact on inflation? I will say no.
“So, I think it is important the CBN looks beyond the orthodox method because it does not look like it is working for us. I believe that the government should look beyond the management of interest rates to curb inflation.

“There are so many areas the government can look into to make the economy more efficient.

“There is a need to increase real investment in infrastructure, for instance. I think for CBN as well, economic policies should be made, taking cognizance of our peculiarities and what would work for us.

“The government should also try to reduce leakages in the system because at the end of the day, when you look at the cost of governance all of these have a direct impact on growth and the ability of the government to invest,” she said.

The Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, admitted that headline inflation numbers for July at 24.08 per cent and food inflation at 26.98 per cent, are still not an accurate representation of the hike in energy and food prices the country has experienced from the deregulation of petrol pricing and devaluation of the naira, it is an indication that at the Monetary Policy Committee has to hike MPR by at least 100 basis points at the next MPC meeting.

He argued that deposit money banks embarking on fundraising exercises to not only shore up their total capital as a tool to maintain their capital adequacy ratio on rising non-performing loan books is also an indication that the apex bank might soon call for capital revaluation exercise of gearing ratio.

He added: “Nigerians will have to brace up for higher commercial lending rates, higher bond yields as the government experiences higher premiums to borrow from the markets, less access to commercial loans, as the banks weigh the ability of customers to pay back interest and principal in this very tough economic environment.”

The Lead Director Centre for Social Justice (CSJ), Eze Onyekpere, in his reaction to the figures released by the NBS, said the figures do not reflect the true state of inflation in Nigeria.

The Laurels International Magazine

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