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Govt palliative worsening food inflation, says Cardoso
The government's massive purchases of food as palliatives, according to Olayemi Cardoso, Governor of the Central Bank of Nigeria, are a major factor in the nation's skyrocketing food inflation.
In his remarks during the March Monetary Policy Committee, which were posted on the CBN website, he made this claim.
The benchmark interest rate was raised from 22.75 percent to 24.75 percent by the MPC.
The group stated that combating inflation was the goal of its aggressive approach.
Nonetheless, the nation's inflation rate surged to 33.2% in March, with food inflation hitting 40.01%, a 15.56 percentage point increase from 24.45% in March 2023 on a year-over-year basis.
The National Bureau of Statistics said that growing costs for products including water yam, garri, millet, and yam tubers could be the cause of the spike in food inflation.
The Federal Government authorised N5 billion for each state and the Federal Capital Territory to purchase food products for the purpose of distributing them to the underprivileged residents of their respective states after the fuel subsidy was removed.
The CBN governor stated that despite the interest rate increase in February, inflationary pressure has not decreased.
He declared, "Inflationary pressure is still present despite the foreign currency market's noticeable stability as a result of the decisions made at the 293rd MPC meeting. There is still a chance that inflation will soar even though there is a valid argument that the system has not yet fully absorbed the substantial tightening that has occurred since the last MPC meeting. There may be very few options for controlling inflation if such a hyperinflationary scenario comes to pass. Based on the information provided to the MPC, it is evident that the monetary forces that drive inflation are becoming less important.
This may serve as proof of the effects of the decisions made at the 293rd MPC meeting. According to staff reports, increases in the cost of energy and food, which are linked to structural issues, are the main causes of the acceleration of inflation. In addition, fresh aspects of inflationary pressure are becoming apparent. First, "seller inflation," which is a result of the oligopolistic structure of commodity markets and is manifested in local commodity prices, is becoming increasingly significant. A further element contributing to the inflation of food prices is the government's massive purchases of food to be distributed as palliatives to the most vulnerable citizens. Seasonal variables such as food price hikes during religious fasting and festival periods also contribute to price cyclicality.
He went on to say that in addition to monetary policy, the fiscal authorities were better suited to deal with the emerging drivers of inflation.
"Both food and core inflation rose in February 2024, underpinning acceleration in headline inflation to 31.70 per cent in February 2024 from 29.90 per cent in the previous month," said Bala Bello, another committee member, echoing a similar stance about the escalating inflationary trend. High manufacturing costs, ongoing security threats, and exchange rate pressures were the key causes of this ongoing inflationary trend.
With its detrimental effects on people's purchasing power, investment decisions, and overall output performance, inflation is currently too high and needs to be controlled with swift action and coordination.
Bala believes that the Federal Government's efforts to combat food insecurity, including the release of grains from strategic stockpiles, the distribution of fertiliser and seeds, and assistance for dry season farming, are significant and admirable.