As Cardoso Gains Ground in Inflation Fight

Joseph Coker

The Central Bank of Nigeria (CBN) under Mr. Olayemi Cardoso has recorded some progress in its fight against the soaring inflation rate in the country that had plagued the nation for years. By aggressively tightening monetary policy, the CBN aimed to curb excessive money supply, a key driver of inflation.

Owing to this, the Consumer Price Index (CPI), which measures the rate of change in prices of goods and commodities, eased to 33.4 percent in July, compared to 34.19 percent in the preceding month. Year-on-year, the headline inflation rate was 9.32 percent higher, compared to 24.08 percent in July 2023.

According to the CPI report for the month under review, month-on-month, inflation stood at 2.28 percent in July compared to 2.31 percent in June.

However, year-on-year, food inflation increased to 39.53 percent compared to 26.98 percent in July 2023, while the index decreased month-on-month to 2.47 percent, compared to 2.55 percent in June.

“All items less farm produces and energy” or core inflation, which excludes the prices of volatile agricultural produces and energy, increased to 27.47 per cent year-on-year in July, compared to 20.47 per cent in the corresponding period of 2023.

Month-on-month, core inflation was 2.16 per cent in July, compared to 2.06 per cent in June.

The NBS attributed the rise in food inflation, year-on-year, to increases in prices of Semovita, yam flour (prepacked), wheat flour (prepacked), bread and cereals class, yam, irish potatoes, water yam, potatoes, yam and other tubers class), groundnut oil, palm oil (oil and fats class) and milo, Bournvita, Ovaltine, among others.

Month-on-month drop in food prices was also attributed to the decline in the rate of increase in the average prices of tin milk, baby powdered milk, mudfish fish, fresh fish, snail, date palm fruit, watermelon, garri, akpu (under bread and cereal), exercise books, textbooks, turkey meat, and minced pork, among others.

However, the rise in the core index, year-on-year, was attributed to highest increases in prices of rents (actual and imputed rentals for housing class), bus journey intercity, journey by motorcycle, etc. (under passenger transport by road class), and accommodation service, laboratory service, x-ray photography, consultation fee of a medical doctor, among others.

The statistical agency pointed out that average annual rate of food inflation for the 12 months ending June 2024 over the previous 12-month average was 36.36 per cent, indicating an 11.90 per cent increase, from 24.46 per cent average annual rate of change recorded in July 2023.

Year-on-year, urban inflation increased to 35.77 per cent, compared to the 25.83 per cent in July 2023. Month-on-month, the index was 2.46 per cent in July, almost from the preceding month.

Cardoso had made inflation tackling his paramount mission and the essential path to achieving sustainable economic growth in the mid-term to long-term as well as improving the standard of living of ordinary Nigerians.

With that, in the past few months, the CBN has adopted an aggressive monetary policy stance that involves increasing interest rates, which makes borrowing more expensive. This, in theory, reduces spending and investment, thereby cooling down demand in the economy. Additionally, the bank has been implementing measures to mop up excess liquidity from the system, further tightening financial conditions. Precisely, in its fourth consecutive hike since February, the CBN recently increased the MPR by 50 basis points to 26.75 percent in July, from 26.25 percent. The Monetary Policy Committee (MPC), had also adjusted the asymmetric corridor around the MPR to +500/-100 from +100/- 300 basis points.

Early indications suggest that these measures are starting to yield positive results. Recent data showed a slight deceleration in the month-on-month inflation rate, which analysts have attributed to the monetary policy stance of the CBN under Cardoso, arguing that the tightening measures have begun to impact prices.

The monthly inflation trend underscored conviction from members of the MPC that a combination of tighter monetary policy and appropriate coordinated fiscal measures from the federal government would prove effective in arresting the sharp increase in the cost of living that has afflicted Nigerians since the aftermath of the COVID-19 epidemic.

Cardoso had said the committee was mindful of the effect of rising prices on households and businesses and expressed its resolve to take necessary measures to bring inflation under control. He further re-emphasised its commitment to CBN’s price stability mandate, expressing optimism that despite the June 2024 uptick in headline inflation, prices are expected to moderate in the near-term.

Cardoso, who read the committee’s communique, specifically noted the persistence of food inflation, which continues to undermine price stability.

He said while monetary policy has been moderating aggregate demand, rising food and energy costs continue to exert upward pressure on price development.

Notably, the CBN governor pointed out that the prevailing insecurity in food-producing areas and high cost of transportation of farm produce are also contributing to headline inflation.

He said the committee was therefore not oblivious to the urgent benefit of addressing these challenges as it will offer a sustainable solution to the persistent pressure on food prices.

The CBN also considered the increasing activities of middlemen who often finance smallholder farmers, aggregate, hoard and move farm produce across the border to neighboring countries.

The committee, thus, highlighted the need to put in check such activities in order to address the food supply deficit in the Nigerian market to moderate prices.

The MPC, therefore, resolved to sustain collaboration with the fiscal authority to ensure that inflationary pressure is subdued. According to Cardoso, the MPC further expressed optimism with the recent stop gap measures by the federal government to bridge the food supply deficit.

In particular, he noted that the 150-day duty-free import window for food commodities including maize, husked brown rice, wheat, and cowpeas, among others, will moderate domestic food prices.

Also, CBN’s Deputy Governor in charge of the Economic Policy Directorate, Muhammad Sani Abdullahi, recently noted that, “Slowly but surely, the inflation tide is turning.”

Abdullahi added: “We will continue to work diligently with coordinated policy measures to ensure that the worst of the inflationary cycle is behind us in the nearest future.”

Indeed, while the initial signs are promising, it’s crucial to note that taming inflation is a complex process. Several factors, including supply-side constraints, exchange rate volatility, and security challenges, continue to exert upward pressure on prices.

Going forward, the effectiveness of the CBN’s policy will depend on several factors: The central bank must maintain its tight monetary stance until inflation is firmly under control. Also, fiscal policy, such as increased government revenue and targeted spending, can complement monetary policy in fighting inflation. In addition, there is a need to address the supply-side bottlenecks and improve the business environment to ensure long-term price stability.

Interestingly, as part of efforts to complement efforts of the CBN in its fight against inflation, following the approval of a 100 percent Duty-Free Rate and Value Added Tax VAT) exemption on select basic food items, the federal government a few days ago, unveiled guidelines on the policy’s implementation, to tame the rising cost of food and stimulate domestic agricultural growth.

The implementation guidelines titled, “Regulation for the Implementation of the Customs, Excise Tariff, Etc. Variation Order 2024,” signed by Minister of Finance and Coordinating Minister of the Economy, Wale Edun, was aimed at controlling and reducing food price inflation through waivers, duties, VAT and tariffs payable on the importation of basic food items.

Edun had some days ago directed the Nigeria Customs Service (NCS) to commence the implementation of the duty-free import of select food items from yesterday (August 15) through December 31, 2024.

The government listed the objectives of implementation guidelines of the new policy drive to include providing a framework for the implementation and administration of the Customs, Excise Tariffs, etc. Order 2024 to control and reduce food price inflation by waiving levies, duties, value-added taxes, and tariffs payable on the importation of basic food items; stimulating the domestic agricultural value chain, in particular, cultivation of staple food items, food processing industry; and having a direct effect on investment in the agricultural sector and its value chain.

While the road ahead is challenging, the CBN’s efforts to curb inflation are a step in the right direction. Continued monitoring of the situation and adjustments to policy as needed will be crucial in achieving sustainable price stability for Nigeria.