There is no doubt that the inflation rate in the country has been ravaging to the chagrin and discomfiture of all. Inflation rate of approximately 18 per cent which kept on rising for a period of over one year is unfamiliar and alarming to say the least. Until the last two months when a modest reversal was witnessed as the rate of increase was for the first time in a long while below 18% as it settled at 17.93%,the situation gave much cause for concern. This situation is most certainly not supportive and it is totally injurious to the wellbeing of a generality of our population.
What makes inflation unacceptable is that it affects more the marginalized poor amongst the population who are not in a position to pass its effect on but bear the full deleterious impact as it undermines their purchasing power, increases the misery index in the land, undermines capacity utilization and therefore erodes GDP growth rates. But the recent reversal which we hope could signify a turning point,is most certainly not Uhuru yet as some critical sectors such as food inflation had not witnessed any reversal but had maintained a rising trend. Therefore the respite which a generality of the population are seeking is a dream yet deferred.
So what are the causes of inflation? There are two main sources. One is when you have excessive demand in the economy due to the injection of massive liquidity as we have witnessed lately through the extension of palliative funding to combat the impact of COVID 19 in the economy. This type of inflation is referred to as demand pull inflation. This reminds us of the argument by the Edo State Governor; Godwin Obaseki that the Federal Government was printing more which he cautioned could be damaging to the future prospects of the economy.
Though his caution was timely, the fact remained that at the material point in time, there were hardly any alternatives if we must maintain some semblance of peace in the polity. Demand Pull reminds one of the classic definition of inflation which describes inflation as a situation of too much money chasing available quantities of goods and services.
The other component with regard to the cause of inflation is cost push; this explains a situation whereby there are increases in the cost of factors of production which are in turn passed on to the consumer through general increases in prices. The reality of the situation in Nigeria today is that there is no product or service that has not recently witnessed an increase in price and it is tough for a generality of the population. One of the major causative factors in this respect is the falling value of the exchange rate of the Naira.
Despite the best efforts of the Central Bank in supporting the rate of exchange it has been so difficult because of lack of productivity in the country which got worsened in the pandemic environment as the Central Bank remained the only supplier of foreign exchange in the economy. Nigerians also have an attitude of consuming what the country does not have the capacity to produce which piles up demand pressure on foreign exchange. The fact that the country at this point in time also has to import refined petroleum products which makes a priority claim on available foreign exchange imposed considerable demand pressure on available supply of foreign exchange.
There is also currently food inflation which is worsened by insurrection in parts of the country particularly the food basket regions of the middle belt as farmers are not able to go to their farms.
What are the solutions? There are no quick fixes in this connection except if somehow we could find the political courage to end subsidy on the petroleum products which is very difficult as it remains a veritable hot potato to grapple with. The one saving grace is that the Dangote Refinery is projected to commence operations in the first quarter of next year 2022 and no doubt such a development will ameliorate the nightmare in this regard.
The new kid on the block at the Economic and Financial Services Commission; AbdulrasheedBawa seems to have gotten off to a roaring start as the indications are that he had hit the ground running going by the humongous amounts he has reported that the Agency has recovered in his short period at the helm. But he must guard against the syndrome of early and premature celebration of success which tends to divert needed focused attention if results are to be achieved in a sustainable manner.
Corruption in any economy distorts the incentive system as it encourages a get rich quick mentality. It also subverts the value system in the economy as it undermines the values of hard work as it fosters a mindset of instant gratification. And in the particular Nigerian situation, corruption piles up demand pressure on the exchange rate as most ill-gotten monies seek refuge in dollars. Also while we are at it, we are reminded that election 2023 is round the corner and very soon large amounts of monies will start making the rounds and as it is common knowledge dollars are the preferred means of exchange in this regard.
The reduction on the scale of insurrection in the country would also help in this respect. It is therefore welcome news the victory recorded against the bandits by our troops as a result of the reversal of the abduction at the school at kebbi State albeit at considerable loss of lives. If we can make more progress of this nature that could impact positively as the farm population return to their farms and therefore that could give some respite to rising food prices as supplies improve.
There is no doubt that the rate of inflation will be positively impacted in an overall improved corporate governance environment with improved infrastructure availability to enhance productivity. For a long time the monetary authorities maintained a target of inflation rate which is single digit in the range of 6 -9 per cent. We must work hard to achieve this target for that would give delayed respite to our impoverished population. But achieving this target will most certainly not be a walk in the park and will demand sustained and focused efforts on the part of all stakeholders.