Report: Reduction of Tariffs on Food Imports Will Ease Inflation

Nume Ekeghe

A report by Afrinvest has stated that an easy win to mitigate the surge in inflation in Nigeria would involve reducing tariffs on food imports.

The report predicts that the upcoming release of inflation figures, scheduled for tomorrow, will show a continued upward trend, reaching 27.9 per cent, marking a 102 basis points increase compared to September’s numbers.

According to the report: “In our view, taming the spiraling inflation scourge would require a simultaneous deployment of harmonised supply and demand side strategies. On the demand side, the CBN under its new management team must rein in the growth of money supply – M3 grew 40.1 per cent annualised in September compared to the annualised real output growth of about 2.5 per cent in the same period.

“The lag effect of robust liquidity management should be positive for taming inflation. Also, market rates must be allowed to clear at a level high enough to incentivise investment and savings in a high inflation-battered environment. In addition, fiscal spending must be more tilted towards value-creating capital spending as against consumption-focused recurrent needs.
On the supply side, the quick win would be to ease restrictions on food imports in the form of lesser tariffs while a more long-term approach would be to tackle the structural issues that affect food supply, especially security, transportation, and logistics.”

It noted that despite the estimation of a modest boost to food supply due to the ongoing green harvest, the combined effect of low-base year and rising transportation costs pose significant risks to food inflation. It stated: “Recall that in September, the headline inflation rate rose for the ninth consecutive month by 92bps to reach 26.7 per cent y/y – the highest since 28.2 per cent in August 2005. Like most of the prior months, the increase in the headline rate was jointly stirred by pressure on both the food baskets. 

“Based on our model output, we estimate a further 102bps spike in the headline rate for October to 27.9 per cent y/y.”
On the impact of the sustained inflationary pressure on the equities markets, its note that the NGX-ASI gained 4.3 per cent in October to bring the YTD return to 35.1 per cent, thereby outperforming the inflation rate in the first ten months. As such, we do not expect the negative inflation outlook to dampen market sentiment in November due to favourable valuations of many bellwethers and the gradual return of FPIs.”