How Nigeria Can Tame Rising Inflation in the Coming Months

As inflation in Nigeria hits 19.6%, the highest in 16 years and 10 months, analysts have recommended quick-fix policies the government can put in place to curb the rising cost of living.

For seven consecutive months this year, Nigerians have struggled to cope with rising costs of living, weighed down by stagnating incomes. The Nigerian government has also tried to fight inflation by raising interest rates, among other measures, but these measures have yet to have the desired impact on the economy.

Analysts said the acceleration in the inflation rate is expected to slow between the last quarter of this year and the first quarter of 2023 after peaking. This is due to the seasonality caused by good food harvests towards the end of the year.

“When inflation goes above 20%, we can expect moderation which will result from a good food harvest,” said Tajudeen Ibrahim, principal analyst at ChapelHill Denham.

“If we have a good harvest in the last quarter of 2022, we will probably see that inflation will be capped at 20%. Otherwise, a moderation in inflation would be expected in the first quarter of 2023,” he added.

To limit inflationary woes plaguing the economy, analysts said monetary and fiscal policymakers should make long-term investments and changes, one of which is adopting what economists call a creeping peg for resolve the protracted crisis in its foreign exchange market. which scared off foreign investors and increased the cost of doing business in the country.

“The CBN needs to unify several exchange rates that have impacted the cost of doing business in this import-dependent country,” said Akpan Ekpo, a renowned economist and former vice-chancellor of Uyo University.

During the last LBS breakfast presentation, Bismarck Rewane, CEO of Financial Derivatives Company, said huge currency inflows via exports, diaspora remittances and investment inflows could help fight against inflation.

Nigeria’s inflationary pressures came largely from rising food prices, with food inflation for July rising for the fifth consecutive month to 22.02%, from 20.60% in June 2022 and 21.03% in July 2021. At the current rate, core inflation at 16.26% is the lowest. relative to headline inflation and food inflation.

According to the National Bureau of Statistics, Nigerian households spend an average of 56.65% of their consumption expenditure on food items and 43.35% on non-food items.

“There is an urgent need to address the insecurity affecting agricultural productivity,” Tajudeen said.

Ekpo added that it was necessary to produce and export more non-oil goods to earn more foreign exchange in the country. He added that the government should work with oil and gas companies to boost oil production, which has continued to decline in the country.

Ekpo said: “It is important that the government and major financiers work with oil and gas companies to increase production capacity to ensure demand does not exceed supply.

Read also: Food inflation in Nigeria rises despite falling global commodity prices

“Furthermore, a lot of work and funding needs to be urgently invested in alternative energy sources to prevent the recurrence of this year’s energy inflation.”

According to Tajudeen, the government should accelerate investments in infrastructure that can bring down the cost of doing business and the cost of production, as inflation in the country is mainly cost driven.

“This includes investments in railway projects, the road network and the electricity sector,” Tajudeen said. “It’s because the cost of production is higher, which is why people raise their prices.”

Tajudeen said that if the inflation rate goes above 20%, it is very likely that the Central Bank of Nigeria (CBN) will consider raising the monetary policy rate to 15% from the current rate of 14%.

“A rise in interest rates to mop up excess liquidity in the market would also fix interest rates,” Rewane said.

Data obtained from the CBN shows that total borrowing by the Nigerian government from the CBN through Ways and Means Advances has increased from N17.46 trillion in December 2021 to N19.91 trillion in June 2022.

Nigerian governors, in a meeting with President Muhammadu Buhari in July, expressed concern over this, saying billions of naira to a few billion dollars would put pressure on foreign reserves and the exchange rate.

“The CBN must restrict advanced ways and means,” Ekpo said.

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