Nigeria’s consumer price index (CPI), which measures inflation, increased by 12.13 percent (year-on-year) in January 2020 for the fifth consecutive time, according to data released by the National Bureau of Statistics (NBS).
While core inflation rose slightly, pressure on food prices suggests that the impact of the border closure is still lingering.
It was the fastest increase in the price level in 21 months, according to the statistical agency.
“This is higher than the rate recorded in December 2019 (11.98) percent. On a month-on-month basis, the Headline index increased by 0.87 percent in January 2020, this is 0.02 percent higher than the rate recorded in December 2019 (0.85) percent,” NBS said.
The increase in consumer prices surpassed expectations as analysts polled by BusinessDay expected inflation to rise between 12.01 and 12.03 percent.
Experts have said the continued rise in the Nigeria’s food inflation is more than ever indicating how the agriculture policy is failing and has signalled a wakeup call on the need for robust policies that can drive the desired growth in the sector as well as aid the government’s food security agenda.
“We need a robust policy in agriculture. The rise in food inflation is a concern to us. We are not producing as much as we consume. Meanwhile, we shut down food from other countries without empowering our local producers to produce as much as we need. This also contributed to the increase in the price of food,” Tope Fasua, CEO, Global Analytic Consulting Limited, told BusinessDay in a chat.
Fasua said there was lack of clarity around the policy direction of the minister of agriculture and rural development and criticised over-emphasis on rice production.
At the moment, only the CBN appears to have come to the rescue with its Anchor Borrowers’ Programme while the critical fiscal authorities appear asleep.
Chika Ife Okeke, executive director, Feed Africa Advocacy Network (FAAN), said government needs to deepen efforts at fixing the challenges facing the sector, including inactive research institutes, poor infrastructure, poor policies and low funding.
Okeke berated the annual budgetary allocation to the sector as inadequate to yield the desired growth in the sector.
Onuh Martin Onuh, professor of the crop and biotechnology, Imo State University, said efforts should be heightened to boost agricultural production as the current production is too low to meet demand of Nigeria’s surging population, considering the border closure which has rather led to hike in the price of local production.
“I think the attention that the government is currently giving to the sector is still below what is expected. Our production is quite low at the moment, considering the impact of the farmer/herder clash,” Onuh said.
In its first meeting for the year, the MPC increased the mandatory percentage of deposit (Cash Reserve Ratio) that banks kept with the CBN at zero interest by 500 basis points to 27.5 percent in a bid to rein in rising inflation, now 313 basis points above CBN’s preferred maximum level.
Sources tell BusinessDay that CBN has done up to three debits on banks since it raised the CRR in January.
The recent inflation surge which is supply-driven will test the CBN’s creativity some analysts say, ruling out the possibility of either a CRR or Monetary Policy Rate (MPR) hike in March.
CBN Governor Godwin Emefiele had in January hinted at the limitations of monetary tools in slowing inflation.
“The MPC thus called on the fiscal authorities to speedily address legacy structural impediments giving rise to upward-trending price developments,” Emefiele said January 27.
But earlier in January Lagos-based Financial Derivatives Company (FDC) said that if the higher VAT led to a spike in inflation in the month, the CBN’s Monetary Policy Committee (MPC) would be left with no alternative than to commence a tightening cycle and raise the MPR, among other things.
If so, it would be the first hike of the main interest rate by the MPC since 2016.
While the impact of the new VAT, which came into effect on February 1, will be measured by March, some analysts that spoke with BusinessDay said the CBN, trapped between economic growth concerns and currency stability, would possibly rely on unconventional means to control inflation.
“CBN would continue with unorthodox means rather than raise CRR further,” said Boboye Olaolu, research analyst at Lagos-based Cordros Capital.
The apex bank recently introduced long-dated FX Futures that extends the maximum contract tenor up to five years as a means to boost dollar-inflow into the economy.
Omotola Abimbola, an analyst at Lagos-based Chapel Hill Denham argued that the CBN would not hike rate because the main interest rate is still below inflation.
However, Abimbola said the CBN would likely act on the liquidity front given that there was a wage increase in January that increased money supply as well as OMO and bonds maturities injecting more money into the economy.
It remains to see what the MPC, sometimes unpredictable, would do when it meets for the second time this year in late March.
The committee members will, however, have to weigh the impact of possible electricity tariff adjustments and access the effect of the new VAT in addition to the existing pressures on price levels.
Bunmi Bailey, Segun Adams (Lagos) & Cynthia Egboboh (Abuja)