Stop hyper inflation
The National Bureau of Statistics (NBS) a fortnight ago released a stunning report that Nigeria’s inflation rate hit 19.64% in July, the highest since September 2005. That’s quite worrying as this requires the urgent intervention of the country’s economic managers, including the Central Bank of Nigeria (CBN) and the National Economic Council (NEC), to halt the hyper inflationary trend which poses an existential threat to the citizens.
The consumer price index (CPI), which measures the rate of change in the prices of goods and services, jumped 18.60% the previous month, its highest level in 17 years. This increase was recorded in a context of food inflation, which rose from 20.60% in June to 22.02% in July. The increase in the food index was caused by the increase in the prices of bread and cereals, foodstuffs, potatoes, yams and other tubers, meat, fish, oil and fats.
The SNB, in its Consumer Price Index (CPI) report for July 2022, said that on a monthly basis, the headline inflation rate in July 2022 was 1.817%, 0.001% higher than the rate recorded in June 2022. (1.816%).
“The percentage change in the average CPI for the 12-month period ending July 2022 from the average CPI for the previous 12-month period was 16.75%, showing an increase of 0, 46% compared to 16.30% recorded in July 2021,” the report said. .
On a monthly basis, the report states that the inflation rate for food in July was 2.04%, an insignificant drop of 0.01% from the rate recorded in June 2022 (2.05%). “This decline is attributed to a reduction in the prices of certain food products such as tubers, maize, garri and vegetables,” the report said.
State by state, Akwa Ibom, Ebonyi and Kogi states recorded the highest prices while Jigawa, Kano and Borno recorded the smallest increase in inflation. “In July 2022, the inflation rate for all items on an annual basis was highest in Akwa Ibom (22.88%), Ebonyi (22.51%), Kogi (22.08%), while Jigawa (16.62%), Kaduna (17.04%) and Borno (18.04%) recorded the lowest year-on-year rise in headline inflation,” the report said. .
“However, on a monthly basis, July 2022 saw the highest increases in Adamawa (2.87%), Abuja (2.84%), Oyo (2.77%), while Bauchi (0.82%) , Kano (0.83%) and Niger (1.03%) recorded the smallest rise in inflation month on month.
At the same time, “All products less agricultural products” or underlying inflation, which excludes the prices of volatile agricultural products, stood at 16.26% in July 2022, against 15.75 % recorded the previous month. On a monthly basis, the core inflation rate was 1.75% in July 2022, up 0.20% from the 1.56% recorded in June 2022. The report said the highest increases were recorded in the prices of gas, liquid fuels, solid fuel, road and air transport of passengers, clothing, cleaning, repair and rental of clothing.
In an apparent response to seemingly intractable runaway inflation, the Central Bank of Nigeria (CBN) announced an upward adjustment of the minimum negotiable interest rate payable on local currency savings deposits to 30% of the monetary policy (MPR).
In September 2020, the apex bank, as part of efforts to mitigate the impact of the COVID-19 pandemic, had reduced the minimum interest rate payable on savings deposits in naira from 30% of MPR to 10% of RPM. The bank explained that the move was aimed at stimulating growth in the economy as a whole following the economic downturn caused by the pandemic.
The central bank, in a letter addressed to all banks and entitled “Revision of interest rate on savings deposits”, dated August 15, 2022 and signed by the Director of the CBN, Department of Banking Supervision, Mr. Haruna Mustafa, said it became necessary to revise the rate to 30 percent MPR after the economy returns to normal and given the prevailing macroeconomic conditions.
According to the CBN, the effective date for the implementation of the new circular was August 1, 2022 and further superseded previous correspondence on the subject.
However, the CBN, while announcing the reduction of the minimum interest rate payable on local currency savings deposits to 10 percent of MPR last year, observed with satisfaction the downward trends in market rates in the banking sector following the implementation of policies aimed at stimulating the flow of credit to the real sector, among others.
Accordingly, the apex bank has revised the interest payable on savings deposits as provided for in its Guide to Charges for Banks, Other Financial and Non-Financial Institutions published in December 2019. Consequently, the interest rate on savings deposits savings in local currency was reduced to 10 percent. cent of MPR.
While we welcome the CBN’s proactive intervention to cushion the negative effect of hyperinflation on the population by increasing the minimum negotiable interest rate payable on local currency savings deposits from 10% to 30% of the monetary policy rate (MPR), we hasten to say that this is not enough to solve the crisis in any substantial way.
We therefore urge the central bank to, in addition to raising interest rates, halt the free fall of the naira in the international market. A stronger naira will go a long way in supporting the country’s economy, whose reliance on imports is largely responsible for hyperinflation.