•CBN plans reform to crash rates, boost purchasing power

Taofik Salako Dep. Group Business Editor

Rising food prices and the lingering effect of cash crunch are eroding Nigerians’ purchasing power as inflation heads to a new 17-year high.

But the Central Bank of Nigeria (CBN) said it has launched series of consultations and policy reforms to crash rates and boost purchasing power.  

Intelligence reports by many economic and finance firms yesterday indicated that inflation may rise by about 50 basis points to between 22.50 per cent and 22.67 per cent, in what may be the fourth consecutive monthly increase.

Ahead of today’s release of the inflation report by the National Bureau of Statistics (NBS), independent consumer surveys and econometric models showed that inflation remained on the upward trend.

Some analysts however said they expected inflation rate to moderate in the latest report.

The NBS is expected to release its report for April today.

Inflation rate rose by 13 basis points from 21.9 per cent in February to 22.04 per cent in March.

Nigeria has the fifth highest inflation rate in Africa and the second highest in sub-Saharan Africa (SSA).

Financial Derivatives Company (FDC), a leading independent economic and finance research firm, stated that its independent market surveys showed that headline inflation may rise by 0.63 basis points in April to 22.67 per cent.

According to the FDC, month-on-month inflation is projected to increase by 0.42 per cent to 2.29 per cent in April from 1.87 per cent in March.

“Despite the deceleration in the global food index for 12 consecutive months-129 points, and relatively stable exchange rate, both imported and locally produced commodities in Nigeria have remained high.

“The increase in domestic food prices is primarily as a result of supply shortfalls due to the planting season while the rise in imported commodity prices is largely due to the transmission lag between global events and the impact in the domestic economy,” FDC stated.

Analysts noted that Nigerian inflation has remained stubbornly high despite Central Bank of Nigeria (CBN)’s hawkish monetary policy stance.

“If our projections are accurate, inflation will be 13.67 per cent above the upper band of the CBN’s inflation target of nine per cent. This is raising questions as to whether the Nigerian Monetary Policy Committee (MPC) will go in the United State (U.S.) direction or maintain its aggressive monetary policy stance at the next MPC meeting on May 22,” FDC stated.

Afrinvest West Africa and Cordros Capital however expected inflation rate to moderate last month.

They expected the overall consumer price index to moderate to 21.9 per cent in April, with a month-on-month increase of 1.7 per cent.

Read Also: World Bank: High food prices compound food insecurity

Afrinvest expected softer consumer price increases across board in April with increase of 1.6 per cent and 1.8 per cent month-on-month in farm and process food prices respectively, translating to 23.1 per cent and 24.4 per cent year-on-year compared to 23.8 per cent and 24.7 per cent recorded in March.

“We anticipate that off-season harvest in the northern region would blunt the food inflation rate and limit festivities’ impact on food prices,” Afribvest stated.

Cordros Capital projected moderation in inflation rate to 22.01 per cent in April 2023.

“While we expect the Ramadan and Easter celebrations are likely to have stoked food demand, increasing short-term upward pressure on food prices, we believe the core inflation will likely moderate in April, given the phase-out of election spending and reduced volatility in PMS prices,” Cordros Capital stated.

Most analysts have pointed at the stubbornly high inflation rate as a policy failure of the apex bank, which has grossly undermined the nation’s currency management and created pass-through effects that continued to fuel consumer prices. This was compounded by poor fiscal policies and infrastructural deficit.

The CBN at the weekend said it has commenced series of consultations and policy reforms to bring inflation down and strengthen the people’s purchasing power.

The Director, Monetary Policy Department, Central Bank of Nigeria (CBN), Mahmud Hassan, said inflation targeting framework will now replace exchange rate targeting regime as it strives to achieve price stability.

Speaking at a monetary policy department retreat in Lagos, he said the CBN will be consulting the International Monetary Fund (IMF) and regional central banks in South Africa, Botswana, Kenya, Ghana, which are already practicing the policy framework, on how best to implement the inflation targeting regime.

Hassan said the policy change will enable Nigerian and other countries in African Union (AU) and the Economic Community of West African States (ECOWAS) using the format to follow a unified plan in assessing inflation figures.

He lamented that monetary policy failings and inadequacies of money supply management in price stability with the relationship between money supply and inflation getting complex as the years rolled by.

The CBN Hassan admitted that the monetary policy tools deployed against oil price shocks, COVID-19 pandemic, and most recently, the war between Russia and Ukraine have not yielded the right results against inflation which rose to 22.04 per cent in March.

He said despite regular monetary policy tightening and liquidity mop up, the economy is still awash with cash and keeping inflation figures high.

On his part, CBN Deputy Governor, Economic Policy Directorate, Dr. Kingsley Obiora, said tackling inflation will help the economy to make the best use of the low growth regime it is currently experiencing.

He said growth in the economy should also see commiserate trend in people’s purchasing power that will rekindle hope on the economy.

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