Nigeria Inflation Soars to 25.8% in August Amid Economic Challenges

Nigeria's headline inflation rose to 25.8 per cent in August from the 24.08 per cent recorded in July. According to the National Bureau of Statistics, food inflation remains a major driver. Meanwhile, Oil marketers in Nigeria hint a possible hike in the pump price of petrol following recent oil price rally and naira depreciation. Muda Yusuf, a Director at the Centre for the Promotion of Private Enterprises joins me now to discuss Nigeria's macroeconomic environment and factors influencing this inflation in the country. Thank you so much for your time today sir and let me first get your take on the numbers that have been released so far by the National Bureau of Statistics. Well, the numbers have followed a particular trend and it's not surprising because the key drivers of inflation are continuing to intensify. They are not decelerating. If anything, those drivers are actually accelerating. And basically, we are talking about the effects of the foreign exchange markets and the rate at which the exchange rate has been depreciating. That has been a major issue. Then, of course, we had the fuel subsidy, the increase in oil price and all of that. That has also been creating a major issue. Oil price is now getting close to $95 per barrel. That has implications for PMS, that has implications for diesel. Already the cost of diesel is going up. The cost of gas is also going up. I was just reading the reports that even cooking gas very soon, the prices will also begin to go up. So, these are critical challenges which we are yet to have a very firm handle on. I'm talking about issues of the effects and issues of the cost of energy. And of course, fundamentally, with regard to food inflation, we still have the intractable problem of insecurity, which is affecting supply. So, basically, these are the key drivers. And so far, we have not been able to have a very firm handle on those key drivers of inflation. Before we end up, I was just asking you your take on how businesses are faring with these new inflation numbers and also the impact on households. It's extremely difficult, extremely difficult, because this has been affecting the cost of production, the cost of operations of many businesses. And it's even more difficult because it is almost impossible for businesses to transfer the costs to their consumers. So, most of the challenges of increases in costs has been borne by the businesses themselves. So, that is eroding their profit margins, even eroding some of their capital. So, that is the challenge that the businesses are facing at this time. Profit margins are being eroded, sales are dropping because purchasing power is getting weaker by the day. So, it's a lot of pressure on businesses. And on the citizens, of course, you know the implication of inflation for poverty. Already the shock of the fuel subsidy removal and the exchange rate depreciation that has also driven up costs has had a very serious impact on the welfare of the citizens. So, the new round of pressure is also going to worsen the poverty situation for the citizens. So, both for the citizens and businesses, it has been extremely, extremely challenging. So, now let's get to a policy response now because now we're going to have the MPC meetings next week. And I'm trying to imagine for the central bank how they're looking at these issues and your take on the last intervention and the likelihood of a rate hike or more going into the next MPC meeting. And also weighing to the fact that we also just had a new nominee for the central bank governor. Well, I'm not optimistic that much can happen with monetary policy intervention in this matter. We're almost at the extreme of some of these monetary policy instruments. CRR cash reserve ratio is already at 32.5. NPR is already at 18.5. If you look at this metrics or this data globally, these are some of the highest you can find anywhere in the world. And what impact has that actually brought to the table in terms of moderating inflation? So, I'm not optimistic that further hike in rates or further squeezing of the CRR will have any significant impact on inflation. And from what we can see, the key drivers are not actually monetary. The key drivers are fiscal. They are structural. There are issues around the fuel increase. There are issues around ethics. Those are the key drivers. In terms of monetary, I think there is very little that the monetary policy authorities can do. Because the higher we tighten monetary policies, the more we make it even more difficult for the existing businesses. Because interest rate is already very high. For SMEs, interest rate is getting close to 30%. So, further tightening, further worsening their situation. So, it's almost like a cash 22 situation. I don't know whether further tightening of monetary policy will solve any problem. But what would you like to see play out from the fiscal side? Now, we have a minister on board now. And in terms of how you could see that alignment between monetary and fiscal policy, what would you like to see from the fiscal side of things to help things move along better? No, we should just look at the critical things that are impacting the economy, energy prices, food prices, and deploy fiscal policies to see how we can moderate taxes. We can reduce taxes. We can scrap some taxes. We can remove some levies. You know, we can, I mean, just about a month or two ago, there was this additional VAT that was imposed on diesel. So, anything that has to do with energy, I think the government should just give some tax breaks on things that has to do with energy and anything that has to do with food and food processing. That is some of the things I think the government can begin to do. We can also begin to look at import duty on some of these critical things that are driving inflation. We can bring down the import duty on some of these items. Because by the time people pay import duty at a very exorbitant exchange rate, these things are also foiling the cost of operation and the cost of goods and services in the economy. Then, of course, I mean, now that the fiscal space is getting better, we should see less of CPM financing of deficits so that we reduce also monetary liquidity in the economy. So, those are the things I think on the fiscal side that we can begin to explore. Yeah, but on the fiscal side, we still have that huge overhang of debt. Looking at the recent figures from the Debt Management Office, say Nigeria spent about 2.34 trillion naira on debt servicing just in the first half of the year alone. Well, it's not surprising. The debt figures have gone up by over 70 percent. Now, our debt profile is 87 trillion as a result of the add-on from the securitization of the Western mains. So, it's not surprising that we are seeing a ballooning of debt service costs. And the outlook for that is not so bright because if the total debt has now gone up to 87 trillion, then we should expect that the burden of debt service will continue to increase. So, for at least between now and in the near term, we have to grapple with high debt service until we're able to find a way either to restructure the debt or do whatever. But for now, I think that's our reality. All right, we'll definitely keep our eyes and see how things continue to pan out. But thank you so much for your time, Namuda. You received the Director General of the Central for the Promotion of Private Enterprises.

Nigeria’s headline inflation rose to 25.8 per cent in August from the 24.08 per cent recorded in July. According to the National Bureau of Statistics, food inflation remains a major driver. Meanwhile, Oil marketers in Nigeria hint a possible hike in the pump price of petrol following recent oil price rally and naira depreciation. Muda Yusuf, a Director at the Centre for the Promotion of Private Enterprises joins CNBC Africa to discuss the Nigeria's macroeconomic environment and factors influencing price surge of commodities.

How Nigeria can tame rising inflation?

Nigeria’s headline inflation rose to 25.8 per cent in August from the 24.08 per cent recorded in July. According to the National Bureau of Statistics, food inflation remains a major driver. 

How Nigeria can tame rising inflation?

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How Nigeria can tame rising inflation?

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