…Inflation in Nigeria rose consistently from 15.60 per cent in January 2022 to 19.64 percent in July 2022, and to 20.52 percent in August.
By Arize Nwobu
TUE MARCH 11 2025-theGBJournal| The Central Bank of Nigeria( CBN) has been making good efforts and using the necessary monetary tools, especially the Monetary Policy Rate( MPR) to fight inflation and it is anticipated that the Bank will achieve its target objective in the long run.
Inflation is one of the worst things that can happen in an economy. Inflation is a thief of value and a spoiler which makes it difficult for people, especially the lower income consumers to afford the basic necessities of life.
It weakens the exchange rate, discourages savings and investments and can hinder the inflow of foreign investments and drive out foreign investors due to exchange rate fluctuations. And if not properly managed, it can lead to a recession.
Inflation can be Cost- Push( increased production costs), or Demand- Pull(increased demand and increased prices). It can also be Creeping( slow rise in prices), Walking( moderate rise in prices), Running( rapid rise in prices) , Galloping( rapid rise in prices in a short period), or Hyper( double- digit rise in prices).
Hyperinflation is very destructive and can render a currency useless. According to experts, an economy with hyperinflation would be in real trouble. Zimbabwe was noted to have suffered hyperinflation in the 2000s and which was said to be the worst in world history.
Fundamentally, the economy of Zimbabwe was noted to be weak with declined output and exports, and increased money supply by the government in response to rising national debt.
Responsible governments and central banks prioritize the fight against inflation to make life and living more comfortable for citizens. Governments determine the state of the economy through their policies and conduct.
Economic policies can make or mar the fortunes of citizens, thus the need for well thought out policies and sense of responsibility by those in positions of power and authority.
In a recent address to the Joint Congress, President Donald Trump said that he would prioritize the fight against the “Inflation nightmare ” which his government allegedly inherited from the past administration of President Joe Biden and promised to “make America affordable again.”
Inflation in Nigeria rose consistently from 15.60 per cent in January 2022 to 19.64 percent in July 2022, and to 20.52 percent in August. It rose further 20.77 percent in September and reached 21.09 percent in October 2022.
The reasons for the consistent rise were because of a general increase in the cost of production, disruption in the supply of food products and increase in cost of imports due to persistent currency depreciation.
The quantum of money in an economy also affects inflation rate, interest rate, GDP and growth rate, thus the need for the right quantity of money to circulate to keep the economy healthy.
The quantum of money in the economy increased consistently from N3.28 trillion in January 2024 to N3.41trillion in February and to N3.9 trillion in March 2024. It rose to N4.1trillion in October 2024 and with 93 percent of the amount said to be outside the banking system.
Inflation determines how a central bank regulates it money supply and the traditional practice is to use contractionary monetary policy and raise interest rates as inflation rises.
Historically, between 2007- 2013 inflation was between 10-12 percent. CBN consistently pegged the Monetary Policy Rate( MPR) at 12.0 percent and inflation dropped to a, single digit of 8.0 percent.
Also in 2017, CBN consistently retained the MPR at 14.0 percent when inflation was at 19.0 percent and inflation dropped from 19.0 in January to 17.78 percent in February.
In November it dropped from 15.90 percent to 15.37 percent in December 2017. Progressively, it dropped to 14.33 percent in 2018 and further to 13.34 percent in March 2018.
Fast forward to 2023. Inflation rate increased from 22.40 percent in March 2023 to 34.80 percent in December 2024. But after the Consumer Price Index( CPI) was rebased by the National Bureau of Statistics( NBS) , inflation dropped to 24.48 percent.
Nigeria has a Cost- Push inflation and the causes include, increase in fuel price, high cost of logistics, unified exchange rate, high exchange rate, decrease in product and dollarization of the economy.
Other causes include the Ways and Means under the past administration of President Muhammadu Buhari, increased taxes, epileptic power supply, insecurity and herders’ menace.
CBN launched an aggressive fight against inflation and consistently increased the MPR since February 2024.
It also adjusted other monetary policy tools which impact the monetary transmission mechanism, including the Liquidity Ratio( LR) and Cash Reserve Ratio( CRR) of banks.
In February 2024, CBN increased the MPR from 18.75 percent to 22.75 percent which translated to 400 basis points and noted to be unprecedented in the records of the Monetary Policy Committee of CBN.
Based on the escalating trend, CBN Governor, Yemi Cardoso noted that he would have preferred a hike of the MPR to 23.0 percent rather than 22.75 percent but the 12- members of the Monetary Policy Committee settled for 22.75 percent in the period.
However in March, the MPR was further increased from 22.75 percent to 24.75 because the Committee believed that inflation could be more persistent, thus the need for the increase to halt and reverse the trend.
Presently, the MPR is at 27.50 percent and the tempo of inflation is cooling. Reportedly, there is now a slower increase in prices than before.
And hopefully, it may get to a point where it begins to translate into a falling in the prices of items which will impact the daily struggles of citizens.
Nwobu, a Chartered Stockbroker and Business Journalist wrote via arizenwobu@yahoo.com Tel 08033021230.
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