How unsettling economic policies affect Nigeria’s inflation rate

PRICES of goods consistently increased between January and May 2023 by almost one per cent and there are projections that this might continue up until July due to unsettling economic policies by the new government.

Going by this development, the inflation rate is not unexpected to reach between 22.42 per cent and 22.52 per cent in June and July, especially as the effects of fuel subsidy removal and exchange rates unification bite harder.

In May, the National Bureau of Statistics (NBS) reported that headline inflation hit 22.41 per cent. This is 0.19 per cent higher than what was recorded in April. Also, the food inflation rate rose to 24.82 per cent from 19.50 per cent in May.

The inflation trend means that Nigerians buy products, almost, at higher prices every month.

The ICIR reported how the International Monetary Fund (IMF) has warned against economic policies that could threaten overall financial stability.  Also, the World Bank said that increasing inflation rate would push 64 million Nigerians into hunger crises. 

Economic policies in five months

Six months before the tenure end of former President, Muhammadu Buhari, he approved the circulation of the new naira re-design and the phasing out of the old N200, N500, and N1,000 notes.

According to Buhari, the redesign policy was targeted at strengthening macroeconomic parameters, mop up excess money in circulation, boost cashless economy, and discourage cash-for-votes in the 2023 general elections.

The policy backfired and created a scarcity of the naira that resulted in spike in prices of goods. Between December 2022 and February 2023, Nigeria’s inflation rate rose from 21.34 per cent to 21.91 per cent. The trend continued in March (22.04 per cent) and April (22.22 per cent). The ICIR reported that the former chief executive of NBS, Yemi Kale, said the country lost N10 trillion due to the negative impact of the redesign policy.

There are also reports here and here on other fiscal decisions by the Central Bank of Nigeria which impacted negatively on the economy. 

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Upon assumption in May, President Tinubu announced the immediate removal of the fuel subsidy. After this sudden announcement, prices of petrol skyrocketed by 150 to 200 per cent. The ICIR documented the plight of commuters. 

The extended effect of this impacted the prices of food products with the inflation rate rising by 0.19 per cent between April and May. 

Not the first time

Checks by The ICIR revealed that in the last eight years, Nigeria had experienced a five-month consecutive increase in inflation rate twice due to unsettling economic policies. 

In 2016, a report said that the decline in oil prices and the mismanagement of currency crises pushed the country into a recession tagged as the worst in 33 years. Similarly, Nigeria’s inflation rose consistently from 9.62 per cent in January to 15.58 per cent in May and 18.55 per cent by December. 

Also, in 2020, the COVID-19 pandemic crumpled the economy pushed the country into another recession and increased the inflation rate. Prior to this, Buhari had ordered the closed of land borders in 2019 and extended it till 2020.

The inflation rate, within that year,  rose from 12.13 per cent in January to 12.40 per cent in May and hit 15.75 per cent by December. The ICIR documented how the inflation rate rose 59 times under the last administration. 

A way out

IMF proposed that there is a need for policymakers to take aggressive actions on financial policies including various forms of liquidity support, asset purchases, or possibly direct capital injections.




     

     

    It said, “While central banks can extend broad-based liquidity support to solvent banks, they are not equipped to deal with the problems of insolvent firms or borrowers, which must be addressed by governments.

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    “But emerging markets with weaker macro policy frameworks would likely have to confront the very difficult challenges posed by capital flight and currency depreciation-inflation spirals. The central bank would have to remain vigilant about the need to maintain a nominal anchor, limiting any scope to ease.”

    Tinubu, in his inaugural speech, vowed to tackle economic challenges by growing the GDP annually by six per cent, among other issues of multiple exchange rates, taxation and industrial productions.

    However, an analyst, the executive vice chairman of Highcap Securities Limited, David Adonri told The ICIR that if the policies are implemented without corruption, the country’s economy might become flexible.

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    Kehinde Ogunyale tells stories by using data to hold power into account. You can send him a mail at [email protected] or Twitter: Prof_KennyJames

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