Home Nigeria FG faces tough choices to stabilise economy as inflation bites harder

FG faces tough choices to stabilise economy as inflation bites harder


The Monetary Policy Committee (MPC) could bite the bullet next week when it reconvenes and adjusts the policy rate for the first time since September 2020 as resurging inflation concerns and interest rate hike across the world put Nigeria in a difficult position.

According to the Consumer Price Index (CPI) for April released by the National Bureau of Statistics (NBS), yesterday, the headline inflation rate has climbed to 16.8 per cent, the highest in eight months.


The soaring inflation rate, driven by fuel price increases and accelerating costs for food, including bread and cereals, rose to 18.4 per cent from 17.2 per cent in March.

The jump in fuel and food items is driven by global supply disruptions following Russia’s invasion of Ukraine, analysts have equally pointed out.

Also, shortages of jet fuel have led to airline operators increasing fare prices by nearly 100 per cent or in some cases suspending operations as the price of the commodity rose from N190 to N700 per litre in the wake of Russia invasion.

The hike in inflation means the purchasing power of consumers, some of whom live on a minimum wage of N18,000 per month, is being eroded.

According to Ikemesit Effiong, analyst and head of research at sociopolitical risk advisory firm based in Lagos, SBM Intelligence, “Nigeria is not just dealing with rising inflation, when combined with high levels of unemployment and low growth – public and private – Africa’s largest economy is in the throes of an extended bout of stagflation.”

Increased insecurity across parts of the country and the slow ramp-up of election spending could also combine to ensure that prices will remain high for much of the rest of the year, he added.

While the figure is not out-of-range with the data of the past two years, the month-on-month (MoM) change is disturbingly high at 1.76 per cent.

It was the second time the MoM change in CPI would exceed 1.75 per cent in six months, the first being last December at 1.82 per cent. The MoM change in Nigeria’s inflation has not risen to the December figure in five years. It was 1.88 per cent in May 2017.

The volatility of prices of essential commodities in recent months as demonstrated by the data from December to April, which are in the range of 1.47 and 1.82 per cent, puts household real income and expenditure planning at red alert.

The renewed inflation could also mean that the MPC cannot continue to maintain its static position on inflation control. Since September 2020, the Monetary Policy Rate (MPR), a monetary tool that determines liquidity, has remained at 11.5 per cent and there have been speculation that it would be raised this year.

The hawkish outlook around the globe has sent a strong message to Nigeria, with the International Monetary Fund (IMF) and World Bank advising countries battling with fiscal and monetary headwinds, like Nigeria, to follow the global trend.


At the recent MPC meeting, Nigeria narrowly escaped an interest rate hike with six against 10 member votes. For the first time in over a decade, the United States Federal Reserve System increased the interest rate by 50 basis points. The Reserve Bank of India (RBI), the United Kingdom and many other countries have raised their rates as a necessary option to keep inflation at a manageable level.

The rate hike fever has also spread to Africa, with Egypt and South Africa increasing theirs. To contain fast-rising inflation currently estimated at 23.6 per cent. The Bank of Ghana shockingly increased the lending rate by 250 basis points in one fell swoop, bringing the benchmark to 17 per cent.

Not many economists expect the MPR, the rate-fixing arm of the Central Bank of Nigeria (CBN) to continue its conservative stance that started after the lending rate was adjusted from 12.5 per cent to 11.5 per cent in 2020.

But an economist and senior lecturer at the Lagos Business School, Dr. Bongo Adi, told The Guardian that rate hike is not a straight-forward decision for Nigeria at the moment, considering that the unaffordable commercial interests are already sending the private sector, especially small businesses to tailspin.

According to figures sourced from CBN database, the maximum lending rate in March stood at 26.61 per cent. In February, it was even higher at 30.73 per cent while prime borrowing averaged 11.77 per cent in the first quarter.

Sadly, the small businesses, which Dr. Muda Yusuf, a former director-general of the Lagos Chamber of Commerce and Industry (LCCI), believes need affordable funding the most, pay the highest rate for capital.

A higher MPR is expected to have a transmission effect on the cost of commercial loans, and Adi said the CBN might see this as a major reason to leave the interest at its current rate.

“The cost of funds is already too high. If we increase the interest rate, it means the situation will be compounded and businesses will suffer more. If you ask me, I don’t see them increasing it. Any attempt to hike the rates will worsen the situation right now,” he said.

Considering the fear that Nigeria risks losing capital to other markets, Adi said no decision would be an easy one for the CBN.

“The debt servicing to revenue ratio of the government is already too high. So, government will suffer from a higher interest rate because the interest on loans will be higher. It is extremely going to be a difficult choice,” the economist said.

But there is no full-proof interest rate hike that would have any reasonable impact on prices as some economists have argued that the country’s inflation is largely imported and cost-push.


For instance, the cost of diesel, a major component of production cost, has increased by over 200 per cent year-to-date (YTD), which has distorted the domestic supply chain and increased unit costs for many manufacturers.

Sadly, Adi said the uptick in inflation could continue in the next four months as “we have just entered planting season and harvest will not be due till August.”

He said the food component would continue to cause a major upset, at least, in the meantime.  Volatile food prices have a major distortion in the country’s inflation dating back to August 2019 when the land borders were closed. At some points, the differential between core and food inflation was over six per cent. That has narrowed but stood at 4.19 per cent in April. The coming months could see the gap expanding reasonably, especially with no solution yet to the flour supply shock triggered by the Russia invasion of Ukraine.

Speaking to The Guardian, Prof. Sheriffdeen Tella, an economist, said the steep inflation rise was expected following a continued increase in prices of fuel. Tella said it was also expected because the exchange rate has weakened with serious consequences for the majorly import-dependent economy.

He said: “The inflation rate is likely to go higher as we get close to election year. Even though election year is around the corner, the prices of fuel and diesel are not abating; the cost of food and other goods are equally rising.

“However, when the campaigns start, there are indications that they will bring back more dollars, which may reduce the value of dollar against the naira and bring down inflation.”

Tella advised poor Nigerians to immediately begin to adjust their consumption pattern if they must overcome the current challenges.

Another professor of economics at the University of Uyo, Akpan Ekpo, said: “We have rising inflation and unemployment coupled with the higher exchange rate. All these are not helping the matter when you consider the effects of COVID-19 and the war between Russia and Ukraine.”

Dr. Tope Fasua, an economist and former presidential candidate, argued that the reckless importation of goods that could be manufactured in the country is a major driver of inflation.

“I am not a supporter of inflation targeting. I am a supporter of productivity targeting. What we need to do to tackle inflation without production is to tactically find a way to close the economy to encourage local production of things we import. Perhaps, that will take care of imported inflation to a large extent.”

He submitted that Nigeria’s inflation is multidimensional, adding: “The economy is not a productive one and that is where the challenge is. From the supply side, producers, retailers and even importers have to mark up their prices to reflect the cost of production or importation.”


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