Inflation rises from 12.13% to 12.20%, highest in 21 months

* Food inflation increases from 14.85 percent to 14.90 percent in February

Alexander Davis | ConsumerConnect

As inflation peaks at 12.20 percent in February 2020, compared to 12.13 percent in January, analysts have urged the Federal Government of Nigeria to facilitate cheaper domestic credit to the economy.

In view of the latest development in the economy, ThisDay reports that the experts tasked the Federal Government to tackle the root causes of rising inflation, as inflationary pressures continue to distort macroeconomic indices amidst bleak prospects in the global economy caused by the COVID-19 pandemic.

The Consumer Price Index (CPI), which measures inflation, increased to 12.20 percent (year-on-year) in February compared to 12.13 percent in the preceding month, according to the data released yesterday by the National Bureau of Statistics (NBS).

Food inflation increased to 14.90 percent compared to 14.85 percent in January witnessing increases in prices of bread and cereals, fish, meat, vegetables and oils, and fats.

The analysts, therefore, have urged both the monetary and fiscal authorities to address issues relating to general insecurity nationwide, the land border closure and high cost of funds in the economy.

They called on the government to boost credit access to the productive sectors of the economy, particularly agriculture, services and manufacturing and pursue economic diversification with urgency.

The experts warned that unless managed properly, the fallout from the COVID-19 pandemic could worsen price instability in the country.

Also, core inflation, which excludes the prices of volatile agricultural produce increased to 9.43 per cent in February, up by 0.08 percent when compared with 9.35 percent in January.

According to the CPI report for February, the highest increase in prices of pharmaceutical products, non-durable household goods, catering services, passenger transport by air, repair of furniture, maintenance, and repair of personal transport equipment, water supply, carpet, and other floors coverings, major household appliances, dental services, hospital services and vehicle spare parts contributed to the 0.07 per cent uptick in the headline index during the review period.

Similarly, the urban inflation rate increased to 12.85 per cent (year-on-year) in February 2020 from 12.78 per cent recorded in January, while the rural index inflation rose to 11.61 per cent in February from 11.54 per cent in the preceding month.

According to the NBS, on a month-on-month basis, the urban index rose by 0.82 per cent in February, up by 0.10 from 0.92 per cent recorded in January while the rural index also rose by 0.76 per cent in February 2020, down by 0.07 per cent from the 0.83 per cent recorded in January.

Inflation had assumed a downward direction in recent consecutive months when it dropped in January 2019 to 11.37 per cent from 11.44 percent in December in 2018.

The headline index further reduced to 11.31 percent in February and 11.25 per cent in March but resorted to the upward trajectory in April when it climbed to 11.37 per cent- and further to 11.40 percent in May- before falling to 11.22 per cent in June, 11.08 per cent in July, 11.02 percent in August before returning to 11.24 per cent in September, 11.61 percent in October and 11.85 percent in November and 11.98 percent in December, and now 12.13 percent in January 2020 and now 12.20 percent in February.

The rise further dampens the prospects for a lower interest rate regime as well as a reduction in the cost of borrowing given that it is unhealthy for inflation to catch up with the benchmark lending rate.

The MPR, which is the rate at which the apex bank lends to commercial banks, is currently at 13.5 percent.

However, commenting on the new inflation data, Dr. Chijioke Ekechukwu, economist and former Director-General, Abuja Chamber of Commerce and Industry (ACCI), said solutions could only come by addressing the root causes of the rising headline index.

“Inflation is a function of certain factors affecting the consistent rise in prices of goods and services. The first step to addressing such price rise is by identifying the various factors.

“In our own case, general insecurity in the land, the land border closure, dearth of cheap funds increased cost of production arising from lack of adequate power supply, etc.

“We are expecting Coronavirus related inflation in certain goods to happen soon. Solutions can only come by addressing the root causes of the rising inflation rate,” Dr. Ekechukwu said.

Anthony Onoja, an Associate Professor of Agricultural Economics at the University of Port Harcourt (UNIPORT), said the Federal Government should deploy external loans towards providing market and social infrastructure to boost industrialisation and agricultural growth.

“The federal government would need to increase the momentum of improving credit access to the real productive sectors of the economy, particularly agriculture, services, and manufacturing, to be able to build resilience against the stochastic forces such as the COVID-19 pandemic outbreak slowing the global economy,” he stated.

Likewise, Mr. Bismarck Rewane, Chief Executive Officer (CEO), Financial Derivatives Company (FDC) Limited, said the increase didn’t come as a surprise.

A report by his firm stated that the increase would be the sixth consecutive monthly increase and a 22-month high.

“While inflation has maintained an upward trajectory, the rate of increase in the index has declined, indicating that the base year effect is waning.

“In addition, the CBN’s unorthodox policies have seen interest rates declined sharply by an average of 10 per cent.

This has led to a significant drop in interest income and a squeeze in consumers’ purchasing power,” the report stated.

It added that in the past years, food inflation had been the major culprit of rising inflation in Nigeria.

“The impact of the partial closure of the land borders is taking a toll on food prices and creating shortages.

“The other inflation stoking factors include higher logistics costs, VAT hike and lower interest rates,” it stated.

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