THE Central Bank of Nigeria (CBN) said it had identified palliatives as a new contributing factor to rising food prices in Nigeria, which fuels inflation.
The CBN governor, Olayemi Cardoso, revealed this in a document on the outcome of the Monetary Policy Committee (MPC) meeting held between March 25 and 26.
Cardoso said new dimensions of inflationary pressure were emerging, including ‘seller inflation’ arising from the oligopolistic structure of commodity markets, such as the gaining significance of local commodities’ prices.
“In addition, huge purchases by the government for distribution as palliatives to vulnerable citizenry is adding another dimension to the food price inflation, with seasonal factors of food price increases during religious fasting and festive periods, adding price cyclicality.
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“Some of these new sources of inflation are better addressed by the fiscal authorities to complement the efforts of monetary policy in achieving all-round price stability,” he said.
Cardoso noted that the apex bank’s staff reports showed that the principal drivers of inflation acceleration are hikes in food and energy prices, which are associated with structural factors.
“Having identified these non-monetary components of the current inflationary pressure, the major concern of the MPC at the March 2024 meeting was to ensure that the negative real interest rate is reduced to attract capital flows, improve liquidity in the foreign exchange market, and stabilise the exchange rate.
“In the short term, attracting capital flows via foreign portfolio investments and moderating the exchange rate pressure is a proper course of action, bearing in mind the impact of exchange rate pass-through on inflation in an import-dependent economy like Nigeria.
The ICIR reports that headline inflation surged to 33.2 per cent and food inflation to 40.01 per cent in March, rising further after the apex bank’s MPC meeting in February.
Some experts believe that inflation will likely rise in April when the National Bureau of Statistics releases the figure, which is expected to be released by mid-month.
Analysts at CardinalStone Finance Limited, a Lagos-based investment house, project that further inflationary upswing should be expected In April following the recent drastic hike in electricity tariffs.
“The inflation outlook is biased to the upside, a consequence of the recent implementation of a new electricity tariff. For context, the Nigerian Electricity Regulatory Commission (NERC) have hiked price for Band A customer from N68 to N225 per kilowatt hour.
“Nevertheless, we see some downside risk from the recent currency sustainability. “Overall, we project inflation to print 34.6 per cent in April 2024.”
Also, analysts at Alpha Morgan Capital believe that inflation will further increase but at a continuously slower rate.
“We tie this prediction primarily to the recent monetary interventions by the Central Bank of Nigeria in mopping up excess liquidity, curbing volatile exchange rate movement through various aggressive currency interventions, government fiscal policies, such as agricultural interventions, among others.”
In his statement on the MPC meeting’s document, Cardoso pointed out that the low Purchasing Managers Index (PMI) indicated diminished access to credit by critical sectors, calling for increased funds for these sectors.
“Consequently, there is a need to unlock the flow of credit, especially to agriculture, small and medium enterprises (SMEs) and manufacturing, as these sectors are key drivers of domestic output growth,” he added.