Analysts react over steady drop in inflation rate


By Olaleye Aanuoluwapo, Abuja

The former Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf and the President, Association of Capital Market Academics of Nigeria (ACMAN), Prof Uche Uwaleke have expressed views on the recent drop in inflation, calling on the  authorities to tackle insecurity, among others to further bring down  inflation rate in the country.

The National Bureau of Statistics (NBS) during the week had reported headline inflation that dropped marginally by 0.18 percent from 17.93 percent in May to 17.75 percent in June.

Similarly, the food inflation sub index dropped marginally by 0.45 percent from 22.28 percent in May to 21.83 percent in June 2021.

Meanwhile, the month-on-month inflation maintained it upwards trajectory in June with it accelerating marginally from 1.01 percent in May to 1.06 percent in June 2021.

Reacting, Yusuf urged the government to focus on reducing cost of energy, logistics and other variables to moderate the effect of inflation on Nigerians.

Yusuf said three principal drivers of inflation included, cost push factor, supply chain disruptions and monetisation of fiscal deficit or inflation tax.

He listed high energy cost, which included the spike in the cost of diesel, electricity and aviation fuel, high transportation and cost of logistics, and high import tariff as major cost push factor influencers.

“Headline inflation of 17.75 percent is still a reflection of intense and persistent inflationary pressure on the Nigerian economy.

“Even more worrisome is the incessant high food inflation, which was 21.83 percent in June.

“High inflation is hurts investment, it is injurious to the welfare of the people and detrimental to the economy.

“The main factors that have disrupted output in the economy are also heightened insecurity, exclusion of some critical industries from the official foreign exchange window, trade policy issues, among others,” he said.

Yusuf said other variables to be addressed included reviewing import tariff on selected inputs for production, stemming exchange rate depreciation, addressing security problems and improving productivity across all sectors.

He also urged the Central Bank of Nigeria (CBN) to reduce its financing of fiscal deficit to levels provided for in the CBN Act, saying fiscal deficit financing by the Apex Bank acted as a major inflation driver.

“The infusion of this financing typically increases money supply and aggravates inflation.

“It is high powered money and also characterised as inflation tax.

“Reports of interest payments of over N480 billion on ways and means financing by the apex bank between January and May 2021 is quite instructive,” he said.

Uwaleke in a statement to our correspondent said, “On the recently released inflation report for June by the NBS, it is difficult to interpret this marginal drop in headline inflation since April this year to mean a sustainable downward trend in inflation rate.

“This is because the risks to inflation outlook are still present. These include insecurity which directly impacts food inflation, the recent devaluation of the naira and the likely hike in pump price of fuel and electricity tariffs.

“It is also possible the marginal drop in food inflation to 21.83 per cent in June may not reflect actual drop in basic food prices but arising from the ‘base effect’ associated with the methodology of computing CPI on a year on year basis.

“To appreciate the practical reality, one needs to consider price changes based on  month-on-month.

“According to NBS, Headline inflation increased by 1.06percent in June from 1.01percent recorded in May month-on-month.

“It is pertinent to note that Inflationary pressure is coming more from the food component at over 20percent reflecting legacy factors such as inadequate supply and transport challenges.

“This partly explains why food inflation is highest in Kogi and lowest in neighbouring FCT.”

According to him, “Given that inflationary pressure has to do more with supply, I suggest the government and the CBN should scale up interventions in Agriculture with adequate monitoring and evaluation mechanisms put in place.”

He called on the CBN to sustain intervention in the foreign exchange market, given hike in global crude oil prices.

He added that, “In order to increase food output, the need to tackle  the seemingly intractable security challenge facing the country cannot be overemphasized.”