Experts Caution FG, CBN As Inflation Hits 16.47%

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As Nigeria’s headline inflation jumps to 16.47 per cent from 15.75 per cent, economic experts have implored the federal government and the Central Bank of Nigeria (CBN) to take drastic measures to check the rise.

The experts who were reacting to data released yesterday by the National Bureau of Statistics (NBS) warned of dire consequences if the trend was allowed to continue.

According to the NBS report, inflation jumped to 16.47 per cent in January 2021 from 15.75 per cent in December 2020.

This is even as the federal government yesterday warned that about 10million Nigerians may slip below the poverty line by the end of 2021 following the socio-economic impact of COVID-19.

Some of the experts who spoke exclusively with LEADERSHIP blamed the rising rate of headline inflation on Central Bank of Nigeria’s direct funding of the national budget through Ways-and-Means.

They also said the incessant crisis between cattle herders and farmers and rising spate of banditry in the North West are part of the reasons for the hike in prices of food across the country.

Finance expert and academia, Prof Uche Uwaleke, said inflationary pressure was coming more from the food component which has now exceeded 20 per cent.

He said, “This reflects the lingering effects of increases in VAT, pump price of fuel and electricity tariffs as well as insecurity and transport bottlenecks. The inflationary pressure has refused to abate despite border reopening and reduction in levy on imported cars.”

Uwaleke urged government and the CBN to scale up interventions in agriculture sector and consider increasing forex supply to bring down exchange rate, especially now that crude oil prices are relatively high.

He also advised the new service chiefs to roll up their sleeves and confront the “seemingly intractable insecurity challenge in the country.”

Nigeria’s inflation rate has been on steady increase from 11.24 per cent since September 2019.

Efforts by the monetary authorities to stabilise inflation rate through orthodox and unorthodox means have not yielded the right results.

Composite food index rose by 20.57 per cent in January 2021 compared to 19.56 per cent in December 2020.

The statistics office blamed the marginal rise in food prices on increases in the prices of farm produce, oils, meat and other items.

“This rise in the food index was caused by increases in prices of Bread and cereals, Potatoes, Yam and other tubers, Meat, Fruits, Vegetable, Fish and Oils and Fats,” the NBS said in the report that was released yesterday.

Also reacting to the report, a senior stockbroker with Calyxt Securities Limited said, “A high inflation rate makes prices of goods and services unstable. This high volatility in prices results in uncertainty, which negatively affects investment.”

He added that the fixed income investors suffer when inflation rates are high.

The equity investors may be a little bit better off but the cost of production or of rendering services may stiffen profits the companies might want to shut down, he added.

Looking ahead, analysts at Cordros Capital Limited said, “We maintain our upward bias for inflation rate. Our outlook is predicated on the already elevated level of food prices despite the recent moderation in some key food items.

“Also, we note that as we approach the planting season, supply shortages are expected to resurface, which could consequently place further pressure on prices. Also, we anticipate upward adjustments to the price of petrol in line with the deregulation theme as crude oil prices have continued to strengthen towards pre-COVID levels.”

For the financial market, Cordros Capital expected the sustained surge in inflation to further accelerate the reversal in the yield environment considering the huge divergence between macro-economic realities and the yield curve.

Also, analysts at Financial Derivatives Company Limited noted that the rise in inflation figures to a four year high serves as “a rude awakening to the CBN that its fight against inflation is failing”.

They further noted: “It is now approximately eight per cent above the upper limit of nine per cent. It is also notable that monthly and core inflation are declining, meaning that we might be approaching a point of inflection, in which inflation will begin moderating.

“The planting season, which has just started might delay the moderating curve of inflation. However, the recent increase in interest rates in the fixed income market may be signaling to the market that the days of artificially low interest rates are over.

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“The rate of inflation is expected to slow as interest rates rise and consumption declines. Also, the securitisation of the FGN debt, estimated at N11trn, will reduce liquidity in the financial system. Already, short-term interest rates are on the increase, trading at an average of 8.53per cent.”

The inflationary pressure has refused to abate despite border reopening and reduction in levy on imported cars.

Some experts said the new Service Chiefs that were appointed by President Buhari should roll up their sleeves and confront the seemingly intractable insecurity challenge in the country.

The NBS report noted that on month-on-month basis, the food sub-index increased by 1.83 percent in January 2021, down by 0.22 per cent points from 2.05 per cent recorded in December 2020.

Urban inflation rate increased by 17.03 per cent (year-on-year) in January 2021 from 16.33 per cent recorded in December 2020, while the rural inflation rate increased by 15.92 per cent in January 2021 from 15.20 per cent in December 2020.

On a month-on-month basis, the urban index rose by 1.52 per cent in January 2021, down by 0.13 percentage points when compared to the rate recorded in December 2020, while the rural index also rose by 1.46 per cent in January 2021, down by 0.12 compared to the rate that was recorded in December 2020 (1.58 per cent).

The corresponding twelve-month year-on-year average percentage change for the urban index was 14.23 per cent in January 2021.

This is higher than the 13.86 per cent reported in December 2020, while the corresponding rural inflation rate in January 2021 was 13.04 percent compared to 12.67 per cent recorded in December 2020.

10m Nigerians May Become Poor By End Of 2021 – FG

In a related development, the federal government yesterday warned that about 10 million Nigerian would slip below the poverty line by the end of 2021.

This, it said, is due to the impact of the second wave of COVID-19.

Minister of humanitarian affairs, disaster management and social development, Sadiya Umar Farouq, disclosed this during the ministerial dialogue on the National Social Register (NSR) in Abuja.

The minister noted that in 2019, the National Bureau of Statistics estimated that 40.2 per cent (equivalent to 82.9 million) of Nigerians live on less than one dollar ninety cents ($1.9).

Farouq said the federal government, under the current administration, prioritised social protection (SP) interventions as a key strategy towards reducing poverty and addressing the effects of socio-economic vulnerabilities with two key instruments: the National Social Protection Policy (NSPP) – which is currently under review – and the joint FGN-IDA/World Bank National Social Safety-Nets Project (NASSP) – all initiated in 2016.

She said, “The National Social Safety Net Project (NASSP) was set up to deliberately improve the lives of all vulnerable Nigerians. To implement the NASSP, the government established the National Social Safety Net Coordinating Office (NASSCO) to develop the building blocks and set the systems for implementing social safety nets in the country, as well as build the National Social Registry (NSR) – a hub for the aggregation of the databases of Poor and Vulnerable Households (PVHHs) across Nigeria.

“Out of the estimated 82.9 million (40.2 per cent) Nigerians living below the poverty line, we have identified and registered 26.8 million poor and vulnerable individuals, equivalent to about 6.3 million households in our country.

“We are expecting another 20 million to be added to the database and held in the Rapid Response Register – a shock responsive intervention register, specifically targeted at urban informal workers impacted by the current COVID-19 pandemic. This database capacity is unprecedented in the history of our dear country.

“Social registries serve both a social policy role, as inclusion systems, and an operational role, as information systems. They provide a “gateway” for potential inclusion of intended populations into social programs while reducing private and public transactions costs by simplifying certain steps, such as identification and registration of people eligible for social assistance.”

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