• Login
  • Register
Nairametrics
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
Nairametrics
No Result
View All Result
Home Opinions Op-Eds

The major reason CBN policies can’t bring inflation down

Op-Ed Contributor by Op-Ed Contributor
August 30, 2022
in Op-Eds
Godwin Emefiele, DSS, CBN

Image Credit: The Guardian Nigeria

Share on FacebookShare on TwitterShare on Linkedin

Inflation seems to be the buzzword in Nigeria these days. It comes as no surprise, though, given the near-unprecedented rise in the prices of goods and services in the country in recent times. July 2022 inflation rate – the highest in the country since 2005 – stood at 19.64%, up from 15.60% in January 2022, according to the National Bureau of Statistics (NBS).

Even without official statistics to back it up, Nigerians have been feeling the pangs of inflation for quite some time now, as the price of virtually everything seems to increase with each visit to the market. Some may even argue that the NBS’ reports do not paint a true picture of what is on ground.

This is happening despite several interventions made by the Federal Government, mostly through the Central Bank of Nigeria (CBN), to stem the tide. And it makes one wonder if the government is failing to tackle inflation.

RelatedStories

CBN, forex

No recapitalisation deadline extension for BDCs, CBN says 

June 11, 2025
“MPR Should Be Over 30%!” — Esili Eigbe Sparks Fire on Drinks and Mics

“MPR Should Be Over 30%!” — Esili Eigbe Sparks Fire on Drinks and Mics

May 31, 2025

While this may seem true, an insight into the different dimensions of inflation will reveal why Nigeria’s inflation is particularly difficult to tackle and why the CBN’s policies have proven to be ineffective, at least in the short run.

As we all know, inflation, by definition, is a general increase in the prices of goods and services in an economy. What most people do not know, however, is that there are two types – and causes – of inflation: demand-pull inflation and cost-push inflation.

Demand-pull or demand-side inflation is what readily comes to mind when people think of inflation. It is a phenomenon that occurs when an increase in demand encourages producers and sellers to raise their prices in order to maximize their profits. It is measured using the consumer price index (CPI). The 15.60% and 19.64% inflation rates stated earlier in this write-up are derived from the CPI.

The second major type of inflation is the cost-push or supply-side inflation. It occurs due to an increase in the cost of raw materials and the overall cost of production, which ultimately forces producers to pass the extra cost to their customers to remain profitable. The rising cost of production can also force producers to reduce their output, thereby making their products rarer and, therefore, pricier. The producer price index (PPI) can be used to measure inflation from the perspective of the producers.

Now that we are more familiar with inflation, it will become easier to understand why the CBN has not been so effective in controlling it in Nigeria. Addressing demand-pull inflation requires contractionary monetary and fiscal policies by the government. It can raise the policy interest rate (known as the Monetary Policy Rate or MPR in Nigeria), thereby making it costlier to borrow (as banks will also raise their respective lending rates) and more profitable to save (as bank deposits will yield more interest).

In theory, a hike in the MPR reduces the volume of money in circulation and curbs demand, because people would rather save than spend or borrow, since saving now yields more returns.

The CBN can also tackle demand-pull inflation using open market operations, such as selling treasury bills and bonds, to “mop up” excess liquidity from the economy. If people buy more treasury bills and bonds, they will have less money to spend until the maturity periods of the financial instruments.

Fiscal policies like raising taxes or reducing government expenditure theoretically achieve the same inflation-curbing effects. They will reduce the disposable income of consumers, the spending power of businesses and, eventually, the demand for goods and services.

If you have been following the news this year, you will notice that the government has implemented some of these measures in recent times. For instance, the CBN jacked up the MPR from 11.5% to 13% in May and again to 14% in July. Since May, however, the inflation rate in Nigeria has increased from 17.71% to 19.64%, showing that these policies have had little or no effect.

Contrary to popular belief, supply-side inflation is the major cause of inflation in Nigeria. Nigeria is a poor country, with nearly half of its residents surviving on less than $1.90 per day. Unemployment is also very high, and many people are just getting by. There is simply not enough money in circulation to generate the kind of demand that will trigger demand-pull inflation.

This is why policies that the CBN has rolled out over the past several months to tackle inflation do not seem to be working. They are designed to reduce money supply and demand. While such policies can provide occasional short-term relief, the long-term solution to Nigeria’s inflation crisis (or stagflation, as some would argue) lies in implementing supply-side-inflation-curbing measures that will bring down the high cost of production.

But supply-side inflation is more difficult to control than demand-side inflation. Being an import-dependent economy, the prices of most goods and services in Nigeria are at the mercy of vagaries in foreign markets and fluctuations in the exchange rate. In most cases, the prices of imported raw materials, industrial goods and consumer goods are already high by the time they get to our seaports.

Local production, on the other hand, is hamstrung by several deep-seated factors, ranging from insecurity and poor power supply to weak transportation infrastructure and multiple taxation, all of which have conspired to make locally made products almost as costly as their imported counterparts.

Tackling supply-side inflation requires a holistic, macro-level approach by the government. It requires strategies and plans that will supercharge local production through cost reduction, encourage the use of local raw materials and other inputs in production, cut down the appetite for imported goods, stem the foreign exchange crisis, improve security, upgrade critical infrastructure, and attract foreign investments.

Only when these long-term solutions are implemented can Nigerians get a reprieve from the country’s perennial inflation crisis.


Chinedu George Nnawetanma, an economic development enthusiast, strategy professional and SME/startup advisor, writes from Lagos. He can be reached via mediachinedu@gmail.com.


Follow us for Breaking News and Market Intelligence.
Tags: CBNInflation
Op-Ed Contributor

Op-Ed Contributor

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform. To get your articles on Nairametrics, kindly send an email to info@nairametrics.com and we will publish it within 24 hours of approval by our editorial team.

Related Posts

CBN, forex
Financial Services

No recapitalisation deadline extension for BDCs, CBN says 

June 11, 2025
“MPR Should Be Over 30%!” — Esili Eigbe Sparks Fire on Drinks and Mics
Digital Media

“MPR Should Be Over 30%!” — Esili Eigbe Sparks Fire on Drinks and Mics

May 31, 2025
CBN, forex
Financial Services

Private sector credit rises to N77.9 trillion in April 2025 

May 30, 2025
Easy steps to build wealth through saving money in 2024
Economy

Money supply soars to N119 trillion amid CBN’s rate pause strategy 

May 29, 2025
CBN, forex
Financial Services

New CBN instruments target liquidity in Islamic finance 

May 27, 2025
Bank customers with CBN rise to 57 million in April 2023
Business News

Former aide admits no record of alleged $400,000 payment to ex-CBN Gov. Godwin Emefiele

May 27, 2025
Next Post
These intelligent questions will impress any recruiter

5 ways to strengthen communication with your employer in order to build trust and advance your career

Comments 1

  1. Yisau says:
    August 30, 2022 at 11:19 am

    This post misses the main cause of inflation in Nigeria, which is the CBN tripling the amount of naira in circulation.
    That is the main cause, not supply side or demand pull.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Emple
nlng
first bank
Zenth Bank








DUNS

Recent News

  • Cornerstone Insurance declares 27 kobo final dividend, reveals payment date and criteria 
  • Oil Subsidy Fraud: EFCC declares Fargo Petroleum MD wanted over alleged N976 million scam 
  • BUA Cement gains over 7% as Nigerian stock market conquers new territory 

Follow us on social media:

Recent News

Cornerstone Insurance declares 27 kobo final dividend, reveals payment date and criteria 

June 13, 2025
EFCC, NOUN, Sunflower Hotel

Oil Subsidy Fraud: EFCC declares Fargo Petroleum MD wanted over alleged N976 million scam 

June 13, 2025
  • iOS App
  • Android App
  • Contact Us
  • Home
  • Markets
  • Sectors
  • Economy
  • Business News
  • Financial Literacy
  • Disclaimer
  • Ads Disclaimer
  • Copyright Infringement

© 2025 Nairametrics

Welcome Back!

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Fill the forms below to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
Social Media Auto Publish Powered By : XYZScripts.com
No Result
View All Result
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
  • Login
  • Sign Up

© 2025 Nairametrics