The accelerated fiscal deficit financing by the Central Bank of Nigeria is a significant inflation driver, the financing of which has elevated to disturbing levels.
This was disclosed by Dr Muda Yusuf CEO, Centre For The Promotion of Private Enterprise and Former DG LCCI in a statement sent to Nairametrics.
Yusuf’s statement follows the recently released Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS) which showed that Nigeria’s CPI rose by 20.52% year-on-year in August 2022.
What Mr. Yusuf is saying
Yusuf stated that the heightened inflationary pressures in the Nigerian economy remain very troubling with Headline inflation surging to 20.52% in August. Even more worrisome is the spike in food inflation to 23.12%.
He said, “However, on a month-on-month basis, there was a marginal drop in Headline inflation by 0.05%.
“The reality is that the major inflation drivers have not abated, if anything, some have become even more intense.
“These factors include high transportation costs, Increasing logistics challenges, worsening exchange rate depreciation, forex liquidity issues, hike in energy prices, climate change issues, insecurity in many farming communities, and structural bottlenecks to production. These are basically supply-side issues.
He added that accelerated fiscal deficit financing by the CBN is also a significant inflation driver. The financing of fiscal deficit has been elevated to disturbing levels at almost N20 trillion.
“This has huge implications for money supply and knock-on effect on inflation. CBN financing of deficit is high-powered money and very inflationary. It is inflation tax.
Yusuf warned that mounting inflationary pressures weaken the purchasing power of citizens as real incomes are eroded. He said it also aggravates pressure on production costs, negatively impacts profitability, erodes shareholders’ value and undermines investors’ confidence.
“In most cases, increases in production costs cannot be transferred to consumers by industrialists. The implication is that producers are also taking a major hit. This is more pronounced where the demand for the product is elastic. These are products that consumers can readily do without,” he added.
He urged government intervention to address the challenges bedevilling the supply side of the economy and the moderation of fiscal deficit monetization.
What you should know
- Nairametrics reported yesterday that Nigeria’s inflation rate surged further to 20.52% in the month of August 2022, from 19.64% recorded in the previous month, representing the highest rate since September 2005, according to data tracked by Nairalytics, a web portal that publishes Nigeria’s historical macroeconomic data.
- The recently released Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS) showed that Nigeria’s CPI rose by 20.52% year-on-year in August 2022. On a month-on-month basis, the index rose by 1.77% compared to the 1.82% increase recorded in the previous month.
- Food inflation rose to 23.12% in August 2022, representing a 1.1%-point increase compared to 22.02% recorded in the previous month. On a month-on-month basis, the food inflation rate in July stood at 1.98%, this is 0.07% lower than 2.04% recorded in the previous month.
- Nairametrics also reported last month that the Central Bank of Nigeria extended a total sum of N19.9 trillion circa (N20 trillion) in loans to the Federal Government under its Ways and Means provision as included in the CBN Act.
- The Ways and Means provision allows the government to borrow from the Apex Bank if it needs short-term or emergency finance to fund delayed government expected cash receipts of fiscal deficits.