Global Economic Outlook (G.E.O)
Inflation Worsens in Nigeria Despite CBN’s MPR Increase. Vol. 102. August 15, 2022.
Dear readers, welcome to another edition of the Global Economic Outlook (G.E.O) - our weekly newsletter providing insights on finance, investment and the economy. In today’s edition, we will be looking at Nigeria’s worsening inflation figure.
***
Inflation Worsens in Nigeria Despite CBN’s MPR Increase
Nigeria’s inflation rate continued its negative trend in July 2022 increasing to 19.64%, the highest in more than a decade and the sixth consecutive increase in 2022 alone. This is according to the latest Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS). The inflation rate was 17.38% in the corresponding month in the previous year and reached 18.60% in June 2022.
A further breakdown shows that food inflation was a major factor in the general increase in price as it rose to 22.02% in July 2022 from 20.6% the previous month. Nigerians will be particularly interested in the food inflation metric as that probably hits the hardest. Also, there is not much difference between the inflation rate in the urban areas (20.09%) and in the rural areas (19.22%) which means nobody is finding it easy.
It is strange that it is when the Central Bank of Nigeria (CBN) decided to prioritize inflation that the situation appears to be worsening. You will recall that the CBN has increased the Monetary Policy Rate (MPR) twice in the past few months in order to curb the stem of inflation. The CBN first raised the MPR to 13% but soon followed that with an increase to 14% in order to tighten the economy but that is certainly not reflecting in the current inflation rate.
In truth, it is not a surprise that the CBN MPR raise is not having the desired effect. We have previously identified other factors which the CBN must consider if it is to be able to keep inflation in check. The most important one has to be the management of the Foreign Exchange (FX) situation in the country. There is a chronic shortage of FX in the country and it has been difficult to attract new inflows into the country due to the high disparity between the official and parallel markets.
If most individuals and businesses have to depend on FX from the parallel market (because it is the ‘efficient’ market) where the rates are skyrocketing, it will only lead to one outcome: the continuous increase in the inflation rate. Those who depend on the official market for FX either have to wait for months to get it or only get a part of their request fulfilled. They are left with no choice but to seek alternative sources and this is reflecting in the prices at which they sell.
Other factors driving the inflation rate upwards include the rising cost of energy, particularly diesel in Nigeria, but that is on the fiscal side of things which is not under the purview of the CBN. We will save that discussion for another time.
The use of MPR as a monetary policy tool might be effective in countries where the causes of inflation are not multifaceted but that is definitely not the case in Nigeria.
***
The 8th Live Edition of the Global Economic Outlook (G.E.O) was held on Tuesday, 28th June 2022 with experts discussing the state of the Nigerian economy and how Small and Medium Scale Enterprises (SMEs) can navigate the difficult business environment. It is a must watch!
***
If you have any questions or you need help on how to manage your personal finance, please send us an email at info@ecofinar.com.
***
Please share this newsletter if you have found it insightful. The Global Economic Outlook (G.E.O) is a publication of Ecofinar and is a weekly newsletter on finance, investment and the economy. You can access past editions here. Follow us on our Facebook and LinkedIn pages and subscribe to our YouTube Channel.
Contact us:
Ecofinar Financial Solutions
Email: info@ecofinar.com
Telephone: +234 8027957343
Twitter: @ecofinar
Website: www.ecofinar.com
All rights reserved by Ecofinar Financial Solutions.