The Chief Executive Officer, CEO of the Centre For The Promotion Of Private Enterprise, CPPE, Muda Yusuf, has cautioned that inflationary pressures remain a significant macroeconomic risk in the Nigerian economy.
Yusuf, former Director General of the Lagos Chamber of Commerce and Industry, LCCI, said that it is a major concern to both businesses and the citizens.
Reacting the December Inflation report, he observed that the eight months steady deceleration in headline inflation was brought to a halt with the marginal spike in the December 2021 headline inflation from 15.4 per cent in November 2021 to 15.63 per cent in December 2021.
The surge in demand during the December festivities must have played a role in the marginal spike and reversal of the deceleration trend in headline inflation, he said.
Meanwhile, food inflation, which is the biggest worry for the poor, rose from 17.21% in November to 17.37% in December. But on a month-on-month basis, there was an increase of 2.19%.
The Core inflation, which relates to non-agricultural products, maintained an upward trend. It increased from 13.85% in November to 13.87% in December. This was largely a reflection of the impact of currency depreciation and the liquidity challenges in the forex market.
Speaking on the implications, he said though, the economy witnessed an incremental deceleration in inflation over the past eight months before the reversal in December, high inflationary pressures remain a major concern to stakeholders in the Nigeria economy.
He listed some of the implications to include, escalation of production and operating costs for businesses, leading to erosion of profit margins, drop in sales, decline in turnover and weak manufacturing capacity utilization,
Also, it led to high food prices which impacts adversely on citizens welfare and aggravates poverty and weak purchasing power which poses significant risk to business sustainability as well as price volatility which undermines investors’ confidence.
He also listed major inflation drivers and cost in economy to surge in consumer spending driven by the December festivities.
Further he said exchange rate depreciation has a significant impact on headline inflation, especially the core sub index, while liquidity challenges in the foreign exchange market impacted adversely on manufacturing output.
On the other hand, security concerns affected agricultural output significantly along side climate change effects on agricultural production.
“There are increasing cases of flooding and desertification in many parts of the country. These have negative impact on agricultural output.
Structural constraints affecting productivity in the agricultural value chain.
High transportation costs affecting distribution costs across the country. This is also reflected in the huge differential between farm gate prices and market prices.
Monetization of fiscal deficit [CBN financing of deficit] is highly inflationary because of the liquidity injection effects on the economy. This becomes worrisome when statutory thresholds are exceeded. High transactions costs at the nations ports increases production and operating costs of businesses, noted Yusuf.
He suggested that in order to tame the current inflationary pressure, government should review the foreign exchange market to stabilize the exchange rate and reduce volatility, address forex liquidity issues through appropriate policy measures and address the security concerns causing disruption to agricultural activities.
Yusuf also called for concerted efforts to address productivity issues in the real sector of the economy, challenge of high transportation cost and reduce fiscal deficit financing by the CBN to minimize incidence of high-powered money in the economy.
In addition he called for adequate management of climate change consequences to reduce flooding and desertification restoration of normalcy and good order at the nations ports to reduce transaction costs as well as reduce import duty on intermediate products and raw materials for industries to reduce production costs, especially in the light of the sharp depreciation in the exchange rate.
He equally called for actions to address concerns around high energy cost and creation of an investment friendly tax environment.