There are heightened concerns from stakeholders over the untamed increase in Nigeria’s inflation rate under President Muhammadu Buhari’s eight years tenure.
The National Bureau of Statistics, in its latest Consumer Price Index, CPI, puts April’s annual inflation as 22.22 per cent highest since December 2005, which stood at 17.86 per cent.
The continued hike in inflation has remained unhinged despite the monetary policy measures by the Central Bank of Nigeria.
In its last Monetary Policy Committee meeting in Abuja, the CBN increased the Monetary Policy Rate, also known as the interest rate, to 18 per cent,a measure aimed at curtailing the rising inflation. However, CBN’s effort is yet to have a positive impact on the country’s inflation.
Although Nigeria’s situation is not unconnected to the global economic crisis occasioned by the burden of the energy challenges resulting from the ongoing Russia/Ukraine war, the Nation’s case has been heavily influenced by wrong policies, according to experts.
In his response, last week to report that Nigeria’s inflation soared to 17 year high under Buhari, the Presidential spokesperson, Garba Shehu, said the economic trend is not peculiar to the country.
He blamed the high inflation on global challenges, and that no nation is immune to it owing to the global economic downturn triggered by COVID-19.
Inflation under Buhari’s Eight years Tenure
When Buhari’s administration was inaugurated on May 29th, 2015, Nigeria’s inflation rate hovered around 9.01 per cent.
Fast forward to April 2023, the figure had jumped to the rooftop, standing at 22.22 per cent.
In 2016, the country’s inflation jumped from 9.01 per cent to 15.68 per cent, representing a 6.67 per cent annual increase. At the same time, the inflation rate increased by 0.85 per cent annually to 16.52.
Meanwhile, Nigeria’s inflation rate dropped in 2018 to 12.09 per cent, a 4.43 per cent decline from 2017. There was a further decline of 0.7 per cent in Nigeria 2019 to 11.40 per cent from 12.09 per cent in 2018.
The rise began again as 2020 inflation jumped to 13.25 per cent against 11.40 per cent in the previous year.
In 2021, Nigeria’s inflation rate increased to 16.95 per cent from 13.25 per cent in 2020, representing a 3.71 per cent annual increase.
The inflation figure of 2022 increased to 21.34 per cent; the hike represented a 4.39 per cent increase.
As of April 2023, the country’s inflation rate has increased to 22.22 per cent.
Trends in UK, US, Ghana
No country in the World has the same inflation rate in the period under review.
For instance, the United Kingdom’s March 2023 inflation rate hovers around 10 per cent, an increase from 9 per cent in the previous year, compared with the UK’s 0.2 per cent inflation figure as of April 2015.
In the United States, inflation slowed for a tenth straight month in April to 4.9 per cent, from 5 per cent in March.
However, a retrospect of the figure in 2015, the US inflation rate was 0.7 per cent, a slight difference from 0.8 per cent in the previous year.
The case in Ghana’s inflation as of April is 48.7 per cent, down from 50.8 per cent in March.
In Nigeria, however, during the Eight years of Buhari’s reign, the rise had been consistent except in 2018 and 2019.
The implication of inflation on Nigerians and the Nigerian economy has a far-reaching effect.
DAILY POST reports that the continued rise in inflation had reduced the purchasing power of Nigerians. It is because, from 2015 to date, food prices have risen by over 120 per cent.
Here, a 50kg bag of rice sold at N8,700 in 2015 but increased from N32,000 to N50,000. A 100kg bag of maize was sold at N6,433 and is now N60,000 to N68,000.
The implication is that basic food commodities prices had jumped by more than 100 per cent under Buhari’s eight years administration.
Experts speak on implications, causes
Some economic experts have disclosed that the major causes of Nigeria’s inflation cannot be unrelated to the cost/supply push effect, global energy crisis and inadequacies of foreign reserves.
Speaking to DAILY POST, Prof Segun Ajibola, the former President and Chairman of the Council of Chartered Institute of Bankers of Nigeria, CIBN, blamed the development on pressures from within and outside the country.
He noted that inflationary pressures arise from stretched production costs, resulting in cost-push inflation, an import-dependent economy, and the devaluation or depreciation of the value of the Naira.
The don stated that the link between MPR and inflation is still weak in Nigeria because of the underdeveloped nature of the Nigerian financial system.
Accordingly, he explained that MPR may not have the desired impact on deposit and lending rates in an economy. Hence, it may not influence the inflation rate to drive it down.
“Inflation reflects some pressures from within and outside a country. In Nigeria, inflationary pressure arises from stretched production costs, often called cost-push inflation.
“Recently, local producers have suffered increased energy costs, imported raw materials (due to exchange rate palaver), etc.
“Also, as an import-dependent nation, the depreciation in the value of the Naira has increased the landing costs of imported raw materials, semi-finished and finished products.
“A dose of imported inflation is also starring Nigeria in the face. Other local challenges, including insecurity, are also not helping matters. Cost-push inflation is more difficult to tackle as the underlying factors pushing up those costs must be tackled.
“However, the measures for tackling them do not usually have an immediate impact due to lags between policy implementation and the outcomes. Unlike demand-pull inflation, it is usually caused by “too much money in circulation in the economy chasing fewer goods”.
“In the case of demand-pull inflation, all that needs to be done is to adopt contractionary monetary and fiscal policies to reduce the stock of money in the economy.
“The link between MPR and inflation is still weak in Nigeria because of the underdeveloped nature of the Nigerian financial system. MPR is a market-driven tool of monetary control, and its efficacy depends on the efficiency of the money market.
“Again, MPR is a reference rate which cannot be imposed even on banks except when the banks have reason to borrow from CBN. Accordingly, MPR may not have the desired impact on deposit and lending rates in an economy, hence, may not exert any influence on inflation rate to drive it down”, he stated.
On his part, the Chief Executive Officer of the Economic Associates, Dr Ayo Teriba, said inflation is a global challenge not limited to Nigeria.
He noted that there is no country whose inflation rate in 2015 is the same as that of 2023.
The economic expert stressed that global food and energy cost shocks cause inflationary pressures.
“Well, there is no country in the World whose inflation rate today is not multiple of the value in 2015. Comparing today’s rate with 2015 ignores what precipitated the rise in inflation rates— even the UK and US, which have traditionally maintained less than 2 per cent inflation, had to contain four times that rate.
“Some of these inflations reflect the global shocks to food and energy prices globally. It happened based on cost/supply shocks beyond the control of the World.
“That compact of inflation is so that even though you hike the MPR rate, it would be challenging to affect cost-push inflation, rather it would be another contributory factor.
“Beyond global shocks, another effect is the pass-through of devaluation to inflation. The recent devaluation that took the Naira from less than N500/1$ to over N740/1$ would pass through to inflation.”
Also, the Chief Executive Officer of SD & D Capital Management, Mr Idakolo Gbolade disclosed that significant policies under Buhari’s administration are not in tune with reality, which is why they failed.
He aligned with other economic experts who believed that CBN’s monetary policies caused more harm than good to the Nation’s economy.
“The economy managers during the Buhari administration were using economic policies that were not in tune with reality. The Central Bank, most of the time, was using reactionary measures to tame inflation which has failed to subside despite persistent increases in MPR.
“The inflationary trend in Nigeria is multidimensional and far-reaching measures should have been taken in conjunction with economic stakeholders.
“The CBN has been playing to the gallery all these times because economists and financial experts have been harping on the fact that CBN exchange rate management and continuous increase in the interest rate are causing more harm than good.
“Extraneous factors like weak consumer spending and increased poverty in the land also affected food inflation, but this also stemmed from the bad management of the economy”, he stated.
Similarly, Dr Muda Yusuf, Executive Director of the Centre for the Promotion of Private Enterprise, said that CBN’s efforts at curtailing inflation have failed to reckon with domestic peculiarities driving inflation.
He added that the key drivers of Nigeria’s inflation are supply-side variables, not demand, which is why CBN’s hikes in MPR had no significant impact.
“But this policy choice has failed to reckon with domestic peculiarities driving inflation. The key drivers of Nigeria’s inflation are supply-side variables, not demand driven.
“The several hikes over the years have not significantly impacted inflation. If anything, the general price level became even more elevated”, he said.
Barely six days before the inauguration of the incoming government on May 29th, 2023, the challenges in Nigeria’s economy will shift to Bola Ahmed Tinubu.
While many presume Tinubu has the magic wand, the reality remains that Tinubu has a herculean duty to overcome.
For Prof Ajibola, there must be structural economic reforms which will bring about diversification of the Nigerian economy, less reliance on importation, working refineries to curb high energy costs, adding that Nigeria must consider steps to embark on another round of debt forgiveness plea to cut down on the Nation’s rising debt profile.
“There must be structural reforms of the economy to reposition it. Economic diversification is overdue in Nigeria. Less reliance on importation of consumables and raw materials.
“Let the refineries work. Energy cost is a major challenge to operators in the real sectors of the economy. Nigerians need to tame their appetite for imported items and embrace the culture of consuming things produced locally. All these measures would tame inflation and arrest the growing poverty among the populace.
“On borrowing, a plea for another round of debt forgiveness, debt restructuring, etc., in terms of foreign debt is becoming inevitable.
“However, there is a need for improved monetary and fiscal discipline and accountability at the governance level. In the future, borrowing must be restricted to projects that add value to the Nation’s economic life”.
Deal with Foreign reserves inadequacy- Teriba tells Tinubu
Teriba said the best solution for the Country’s economy is to boost foreign reserves.
“The best way to deal with inflation- we saw in 2017 when the parallel market rate went up to N500/1$ but eventually appreciated to N360/1$. On its journey to N500/1$, inflation increased; the moment it settled back to N360/1$, the inflation decreased steadily for the next eighteen months until the recent shock to global food and energy prices.
“What Nigeria can do is address the inadequate foreign reserves. Nigeria needs more to meet demand. Whatever the country can do to boost the foreign reserves and the parallel market rate to firm up would affect domestic inflation.
“It would be essential to prioritise rather than come out with an endless list of problems to solve.
“The important problem is foreign exchange reserves inadequacies. If you don’t deal with it, you cannot address any other problem.
“The solution is whatever the incoming government can do in the office to get the liquidity to raise the reserve adequacy to a minimum level that would give the government control over foreign exchange rates and policies.
“Poverty, inflation, and others are symptoms of the problem of foreign reserves”, he stated.
Also, Gbolade said the incoming government must halt further borrowing to restructure existing loans.
He noted that the government must develop realistic ideas on poverty alleviation and measures for fuel subsidy removal.
“The incoming government already has its work cut out because of the debt profile, inflation rate and declining oil revenues.
“The incoming government must immediately constitute a robust economic management team and halt further borrowing to restructure existing loans.
“The government must develop ingenious ideas to start realistic poverty alleviation programmes that will be impactful.
“The government should also commence measures of fuel subsidy removal. Still, it must ensure that our public and private refineries are working optimally so that the effect of subsidy removal will be reduced,” he said.
Yusuf’s first solution to Nigeria’s inflation is to address the security concerns disrupting agricultural activities, then create a foreign investment-friendly environment and address the lingering forex crisis.