In July 2022, Nigerians paid more for goods and services than they did exactly a year earlier in July 2021 by a relatively high rate of 19.64%. With this, Nigeria has now had six consecutive months of increased inflation, and the rate is at an almost 17-year high. This is largely attributable to rises in food and energy prices, FOREX scarcity for imports of critical raw materials for manufacturing, and constrained production due to insecurity in some agricultural sites across the country. On the other hand, core inflation increased to 16.26% from 15.75% because of price increases in gas, liquid fuel, solid fuel, garments, and passenger transport by road and by air. It should also be noted that the high cost of aviation fuel, Jet A1 drove the cost of air transport to the roof and became a major driver of the July inflation rate.
Looking at the states’ inflation rates, the three lowest rates were recorded in Borno, Jigawa, and Kaduna, while the highest rates were found in Akwa Ibom, Ebonyi, and, Kogi States. These records may reflect the lockdown on food items in the northwest and northeast since the food items are not brought to the south due to insecurity constraining the movement of goods. This is a warning signal of massive food waste in some parts and scarcity in others. Government should offer a targeted intervention for the movement of food items from production areas to high-demand areas to cushion inflationary pressures.
Specifically, for manufacturers, input prices have spiked. Items such as diesel which most firms depend on for powering their factories have continued to rise in price causing an unbearable cost of production which also translates to higher consumer prices. Nigeria’s energy crisis is worsened by the poor supply of electricity and a bumpy road to renewable energy deployment.
There is s need for a good mix of both fiscal and monetary policies to tackle the core drivers of the inflation scourge in Nigeria. There should be targeted financing for critical sectors like agriculture, food processing, aviation fuels, transport, and FOREX availability for manufacturing inputs. It is obvious that the government’s intervention so far has not impacted the inflationary pressures that keep rising till now. Without concrete and quick steps to intervene, the rising tide of the inflation rate may continue into the end of the year. A major worry is about the inflation scourge constraining production, causing job losses, and courting an imminent recession. The inflation rate may ease in the near term driven by constrained consumer demand, harvests maturing in quarter three, and the resumption of wheat exports from Ukraine to Africa. However, there are fears of falling growth due to constrained production in the past months.
The Chamber has consistently recommended the need for special interventions in critical sector and especially focusing on subsidizing production to reduce the burden of rising cost of production. The reversal of CBN’s concessionary interest rate of 5% on its intervention loans to 9% effective 20th July 2022 does not sensitivity to the burdens on businesses at this time when we struggle with sourcing FOREX, rising fuel costs, and massive disruptions to production lines due to insecurity. We urge the CBN to look beyond hiking rates to taking definite and articulated actions that address the factors driving the inflationary pressures.
Dr. Chinyere Almona, FCA
Director-General
Lagos Chamber of Commerce & Industry (LCCI)
Thursday 18th August 2022