…Weak foreign reserves responsible for high inflation rate — Ayo Teriba
…Cost of production, unemployment, major drivers of high inflation — Fmr CIBN Pres., Ajibola
By Seun Ibiyemi
Following the increase in the inflation rate from 33.96 percent to 34.19 percent in June, stakeholders have expressed major concerns about its effects on the economy and the way forward.
The National Bureau of Statistics (NBS) has released the latest inflation figures, revealing that the headline inflation rate in Nigeria increased to 34.19 percent in June 2024.
This marks a 0.24 percentage point rise from the May 2024 rate of 33.95 percent.
On a year-on-year basis, the headline inflation rate surged by 11.40 percentage points, up from 22.79 percent in June 2023. This significant increase highlights the persistent inflationary pressures affecting the economy.
Meanwhile, one of the primary drivers of this overall inflation is the rise in food prices.
The food inflation rate in June 2024 reached 40.87 percent on a year-on-year basis, which is 15.62 percentage points higher than the 25.25 percent recorded in June 2023.
The NBS attributes the spike to higher prices of staple items such as millet whole grain, garri, and guinea corn, among others.
Month-on-month, the food inflation rate stood at 2.55 percent in June 2024, a 0.26 percentage point increase from May 2024’s 2.28 percent. This indicates a continuing trend of rising food prices, exacerbating the cost of living for many Nigerians.
Urban and rural inflation rates climb
The urban inflation rate in June 2024 was 36.55 percent on a year-on-year basis, showing a 12.23 percentage point increase from the 24.33 percent recorded in June 2023. Month-on-month, the urban inflation rate was 2.46 percent in June 2024, slightly higher than May 2024’s 2.35 percent.
The 12-month average for urban inflation in June 2024 was 32.08 percent, 9.70 percentage points higher than the 22.38 percent reported in June 2023. This reflects sustained inflationary pressures in urban areas, impacting the purchasing power of city dwellers.
In rural areas, the inflation rate rose to 32.09 percent year-on-year in June 2024, up by 10.71 percentage points from 21.37 percent in June 2023. On a month-on-month basis, the rural inflation rate was 2.17 percent, an increase of 0.23 percentage points from May 2024’s 1.94 percent.
The 12-month average for rural inflation in June 2024 was 28.15 percent, compared to 20.76 percent in June 2023, indicating that inflationary trends are also affecting rural populations significantly.
The headline inflation rate on a month-on-month basis in June 2024 was 2.31 percent, up by 0.17 percentage points from May 2024’s 2.14 percent. This month-on-month increase suggests that the overall rate of price increases continues to accelerate, compounding the financial strain on households and businesses across the country.
The latest figures from the NBS underscore the ongoing challenge of inflation in Nigeria.
With the headline inflation rate reaching 34.19 percent and food prices continuing to climb, the economic pressures on both urban and rural populations are becoming more pronounced.
Policymakers face increasing urgency to implement measures that can stabilise prices and provide relief to the affected citizens.
…Presidency spends N16.06 billion to buy foreign currencies for international trips in one year
The Presidency through the State House has spent at least N16.06 billion to buy foreign currencies for international trips in the past one year under the administration of President Bola Tinubu.
This is according to an analysis of data from GovSpend, a platform by BudgIT, which tracks, analyses and presents Federal Government spending over time.
Covering a period from June 23, 2023, to May 25, 2024, the data includes spending by the president, vice president, First Lady, and the Chief of Staff to the President.
It also includes the purchase of foreign exchange (forex) for the Presidential Air Fleet.
In the 2024 budget, the State House, President, and Vice President have a total budgetary allocation of N14.5 billion for international trips. There is no allocation for the First Lady and Chief of Staff to the President for international travel.
The GovSpend data shows that about N6.24 billion was spent in 2023 between June and December. By 2024, about N9.82 billion has been spent between January and May.
It means that the Presidency has spent about 67.72 percent of its international trips budget in the first five months of 2024.
The majority of the amount was spent by the president for his international trips. The President’s forex purchase was significantly higher, totalling N10.93 billion.
These funds were allocated for numerous international trips, including high-value purchases of foreign currency to support diplomatic missions and engagements abroad.
The President’s spending includes N82.04 million for the purchase of $176,392.80 for a trip to Ghana on July 28, 2023.
For various other international trips and replenishments of foreign exchange reserves, amounts such as N152.37 million, N228.55 million, and N146.65 million were expended on August 4, 2023, for purchases of $200,000, $300,000, and $315,300, respectively.
At least four times, N197.70 million was utilised for the purchase of $1,000,000 for presidential trips dated July 19, 2023. Further expenditures include N71.74 million, N18.33 million, and N135.93 million for purchases of €300,000 each for the President’s trips on September 6, 2023.
The total expenditure for the Vice President amounted to N101.68 million. This includes expenses for purchasing foreign currency for various international trips and other related costs. On June 23, 2023, N58.66 million was allocated for the purchase of £1,000,000 (approx. $1,000,000) in UK Pounds for the Vice President.
On February 24, 2024, an additional N426.88 million was used to acquire $483,277.00 for the Vice President’s trip to Switzerland. On September 6, 2023, N43.02 million was spent on the purchase of €300,000 for the Vice President’s trips.
The total expenditure for the First Lady’s international trips amounts to N623.05 million. On January 4, 2024, N149.79 million was allocated for the purchase of $152,831 for the First Lady’s trip to France.
In March 2024, N202.39 million was spent on purchasing $126,834 for the First Lady’s trip to Mozambique. On February 9, 2024, N144.57 million was allocated for the purchase of $96,118 for the First Lady’s trip to Addis Ababa, Ethiopia.
Additionally, in March 2024, N126.3 million was spent on purchasing $83,967 for the First Lady’s trip to London.
The total amount spent by the Office of the Chief of Staff to the President was N59.24 million. This included expenditures for purchasing foreign currency for specific international engagements and preparatory activities for global forums such as the United Nations General Assembly.
The Office of the Chief of Staff to the President also saw expenditures such as N46.51 million for $100,000 for presidential trips to the UK on August 10, 2023.
Another allocation of N12.73 million was made for purchasing $79,740 for preparations towards Nigeria’s participation in the 78th session of the UNGA in the USA on November 22, 2023.
The expenditures for the Presidential Air Fleet were also substantial, amounting to N4.97 billion. This category reflects the operational needs and readiness of the Presidential Air Fleet, including regular high-value allocations for forex transit funds to support the fleet’s international activities and maintain its operational capacity.
The Presidential Air Fleet received substantial funds for forex transit. Significant allocations include N387.60 million on August 15, 2023, N2 billion on August 16, 2023, and N713.22 million on August 29, 2023.
Based on the disclosed currency for some transactions, the dollar was the dominant foreign currency that was purchased as about N6.42 billion was spent to buy $9.98 million.
The expenditures on UK Pounds were relatively lower, totalling N58.66 million for £1 million. For Euros, about N269.02 million was spent to get €1.2 million.
The largest category of expenditure was on Forex Transit funds, amounting to over N9.42 billion. However, the type of foreign currency purchased was not disclosed.
Reactions
…Weak foreign reserve responsible for high inflation rate — Dr. Ayo Teriba
Reacting to the inflation rate in a telephone chat, CEO Economic Associates, Dr. Ayo Teriba said that “although inflation is beginning to lose momentum, the speed of increase is beginning to slow down, which is good news.”
“But the variable to worry about for the country is the exchange rate. It has been weakening in the past month.
“As long as the exchange rate is weakening, you shouldn’t expect inflation to come down. The exchange rate must be mixed to spending first before any expectation of a slowdown in inflation will be reasonable.
“And to strengthen exchange rates, you need to shut off foreign reserves. So there’s no shortcuts in this matter.
“As long as foreign reserve situation remains weak, the exchange rate will remain weak, and inflation will continue to be high.
“So Nigeria has to get the conversation around how to get reserves, to shove the foreign reserves from the 30 billion or slightly above 30 billion level, to something like above 40 billion.
“Then you can go and sleep with two eyes closed, that exchange rate will be stable, and the stable exchange rate will make it possible for inflation to come down.
…Cost of production, important, unemployment, major drivers of high inflation — Prof Segun Ajibola
Speaking to Nigerian NewsDirect, former President/Chairman of Council, Chartered Institute of Bankers of Nigeria, Professor Segun Ajibola has said that cost of production, importation, unemployment are major drivers of high inflation rate.
He said the way inflation is being managed as of today, is not being managed holistically.
“When you concentrate on contractionary policy in a situation where the pressure is coming from the cost end, cost of production, cost of importation, which is what is determining the market prices is not the best. Unless attention is paid to that side, just to reduce money supply, believing that there’s excess money in circulation, is a major challenge
“Everybody will even tell you that there’s scarcity of money and the central bank’s open window, where they lend to banks, they are quoting trillions of naira that being borrowed by banks. So if there’s excess money in the system, why are banks going to the central bank to borrow? These are the kind of confusions that we have,” he said.
He added that these are the kind of the major dichotomy between the figures and policy dimensions being taken at the CBN side and the reality in both personal and business lives in the country.
“Observation does not show that there’s excess money, even if we are talking about concessionary policy, controlling money supply, full attention cannot be paid to that. To tame inflation in this environment, you need a holistic approach. Approach that will look at total money supply, face-to-face the level of productivity and output in the economy.
“That will look at cost elements affecting the lease sector, the manufacturers, affecting their costs, and the market prices of their products. Matters that affect cost of importation, exchange rates, other charges like Customs tariffs and so on. We are aware that the President issued an executive order to suspend duties, custom duties on certain food items.
“That’s an example of how to tame inflation. In real life, it’s not just sitting down looking at the books to say, because the figures are saying this, we must do this. What is the reality of the market? So if we cannot control, because our own kind of inflation in Nigeria is cost-push inflation, not demand pull. So if we cannot control that element that is cost-push inflation, we will continue to go around cycles. We were told that the inflation in the budget for this year is 21.7 percent. We are at 34 percent now, half a year.
“That’s the market reality. Prices are still up. So unless you’re able to control costs from that side, we continue to go in the wrong direction. For example, When you jack up interest rates, the interest rate itself is a cost. Businesses borrow from small-scale enterprises to multinationals. When they pay additional cost of borrowing, it affects their cost of production, and they want to recover that cost from their sale prices, which will affect the market prices. So in an attempt to control inflation, you are helping inflation.
“Can you see a policy contradiction? These are some of the challenges we have in this part of the world. Management of an economy is to manage macroeconomic variables altogether. You manage economic growth, you manage inflation, you manage exchange rates, you manage unemployment issues, and some others. You cannot do that in silos. I’ve heard times without number that our priority is to manage inflation.
“We are prioritising inflation. You can’t manage one in isolation from the others. If you are managing inflation and you ignore economic growth, what if growth recedes to negative? You enter a recession. Can you manage inflation in the face of unemployment? Or when the exchange rate is going haywire, what will determine your inflation at the end of the day if the exchange rate is going haywire? Now it’s hovering around 1,600.
“So macroeconomic management involves managing all of them together in one basket. Then you will now decide. We call it a game of balance,” he said.
Meanwhile, Comercio Partners analysis, stated that looking ahead, food inflation, the main driver, is expected to taper off because of the short-term federal government’s recent interventions, with N2 trillion packages announced by Abubakar Kyari, the minister for Agriculture and Food Security, with an aim to curb rising prices and speed up stabilisation and growth.
Also, a 150-day duty-free import window has been approved, allowing tariff-free importation of maize, husked brown rice, wheat, and cowpeas through land and sea borders.
This measure, with imported commodities subject to a Recommended Retail Price (RRP), aims to provide immediate relief.
However, tackling food inflation long-term means addressing underlying issues like transportation and logistics challenges, harvest losses, and regional insecurity.
Moreover, discussions around raising the minimum wage could further fuel inflationary pressures.
On the monetary front, recent interest rate hikes have helped combat inflation, but another hike seems unlikely because of the tight macroeconomic environment.