Full text of CPPE’s comments on November 2022 inflation figures

By Dr Muda Yusuf

Like in many other parts of the world, the phenomenon of mounting inflationary pressures in the Nigerian economy is yet to abate.  It remains a major cause for concern for stakeholders in the Nigerian economy.

According to the National Bureau of Statistics [NBS], headline inflation accelerated to 21.47% in November as against 21.09% in October. On a month-on-month basis, there it increased to 1.39% in November as against 1.24% in October 2022.

Food inflation rose to 24.13% from 23.72%  in October.  On a month-on-month basis, food inflation grew by 1.4% compared to 1.23% in October. Core inflation similarly spiraled to 18.24%  from 17.76% in October.

Over the last one year, the Nigeria inflation story has been a depressing one as reflected in the dynamics of all key price metrics.

The key inflation drivers have not changed over the last few years. They include the following: the depreciating exchange rate, rising transportation costs,  logistics challenges,   forex market illiquidity, hike in diesel cost,  climate change,  insecurity ravaging farming communities and structural constraints to economic activities. Fiscal deficit financing by the CBN is also a significant factor fueling inflation through high liquidity injection into the economy.

Tapering of monetary easing in the advanced economies is also driving imported inflation and the depreciation in the exchange rate. Consequences of soaring inflation include the following:

· Erosion of purchasing power of citizens as real incomes collapse.

· Mounting poverty.

· Escalation of production costs which negatively impacts profitability

· Shrinking shareholder value in many businesses.

· Waning of investors’ confidence.

· Dwindling manufacturing capacity utilization.

Taming inflation demands urgent government intervention to fix supply side constraints in the economy.  Tackling production and productivity constraints, fixing the dysfunctional forex policy, and reducing liquidity injection through ways and means funding of fiscal deficit.

Meanwhile, the CBN should resist the temptation of further monetary policy tightening. The deployment of monetary tightening tools should be put on pause. The Nigerian economy is not a credit driven economy which is why the tightening outcomes has been inconsequential as a tool to tame inflation.

As at October 2022, credit to the private sector as a percentage of GDP was 22.7% in Nigeria. The percentages for other countries in 2020 according to world bank were 32% in Kenya; 96% in Morocco; 193% in Japan; 143% in UK; 216% in the United States; and 39% was average for sub-Sahara Africa. This underscores the need for variabilities in policy responses.

Inflation had been spiking despite the serial monetary tightening.

Sustained tightening penalizes entrepreneurs [especially the real sector], increases cost of credit with heightened prospects of a backlash on growth.  Inflation restraining strategies should accordingly focus on productivity boosting supply side factors and reduction in ways and means funding of deficit.

Dr Muda Yusuf is the Director, Centre for the Promotion of Private Enterprise [CPPE]