A recent report by the National Bureau of Statistics (NBS) showed that the consumer price index (CPI) which measures inflation rate increased to 14.89 per cent in November 2020. That is 0.66 percentage points higher than the 14.23 per cent recorded in October 2020. This is the 11th consecutive time this year, the consumer price index (CPI) has been on an upward streak.
The report stated that increases were recorded in all Classification of Individual Consumption by Purpose (COICOP) divisions which contributed to the Headline index reflecting higher prices across the economy. The International Monetary Fund (IMF) has already projected that inflation is likely to remain in double-digits and above the Cen- tral Bank of Nigeria’s (CBN) target range.
Yes, we have yet to reach the 2016 August all time high inflation rate of 17.6 per cent, but the way the trajectory is headed northwards, shows that we are not far from that figure and may even surpass it. The strange thing about the present inflation situation in Ni- geria is that it makes nonsense of the real definition of inflation by economists.
Elementary economics teaches that inflation results when too much money is chasing very few goods. But the situation in Nigeria is completely different. There is no money, there is weak demand, which ordinarily would have re- sulted to prices collapsing, but that is not the case, the prices are just rising every day.
It therefore means that what Nigeria is going through is not the usual demand-pull inflation, but cost pull inflation, meaning that the producers are responding to their cost of production not whether there is demand or not. In other words, they would rather leave their goods in the warehouses than sell at a loss. In fact in May this year, the Manufacturers Association of Nigeria (MAN) raised the alarm regarding the high volume of inventory of unsold products which it said was worth N420 billion during the first quarter of 2020 and canvassed a special bailout fund for the sector.
The effect of this is that the manufacturers, because they have not sold what they have produced, they also would not have the capital to buy raw materials to produce more and if they are unable to keep the factories running, it means that factory workers cannot be idle and be collecting salaries every month, they would be laid off to swell the already bursting unemployment space.
The way things are going, it appears it is only the monetary authorities that are working to address the issue of inflation, the fiscal authorities appear to be completely confused as to what they should be doing. That of course results, from the fact that the President’s economic team do not know their work or perhaps there is even no team at all.
The Central Bank of Nigeria (CBN) has always regulated the supply of money so that it is sufficiently scarce that it can serve as a store of value. The CBN has even in recent times delved into areas that are completely outside its mandate all in an effort to stimulate the economy since those that should be taking the initiative have failed to do so.
The major challenge of manufacturers and even farmers in this country is the dearth of infrastructure especially power and roads. The Organised Private Sector of Nigeria (OPSN), said while elec- tricity outages average about 10 hours per day, electricity expenses still constitute about 40 per cent of the total cost of production and the average cost of self-generated electricity averages N119 billion.
This has driven many big time manufacturers out to neighbouring West African countries where electricity is more stable. The road infrastructure is deplorable, making the cost of transportation of goods outrageously expensive.
These are the issues the fiscal authorities should be addressing. The Nigerian economy has already slipped into recession as Gross Domestic Product (GDP) contracted by 3.62 per cent in Q3 2020, thereby dragging the nation into a full-blown recession. Understandably, the effects of the rampaging Coronavirus (COVID-19) has a hand in all these, but the truth remains that with the industries not producing or producing at far below their installed capacity, the high level of unemployment which the figure stands at over 21 million, this country is headed for crisis except those charged with the responsibility of managing the economy come up with some drastic measures that would change the situation.
Analysts believe that scarcity of foreign exchange (forex) and increase in fuel price are among the factors responsible for the spike in inflation figures. It is heartwarming that the CBN, proactive as ever, has started addressing the issue of scarcity of foreign exchange with its new policy on diaspora remittances. The federal government needs to urgently address the issue of our refineries and get them working so that the nation can reduce its dependence on imported fuel. With the reopening of four land borders shut since August last year, perhaps that would reduce the pressure on the economy