The staggering increase in Nigeria’s inflation rate to 25.80% in August has caused a major economic shock.
The most recent rate of inflation is the highest it has been since August 2005, according to the National Bureau of Statistics.
May’s inflation rate was 22.41%, June’s rate was 22.79%, July’s rate was 24.08%, and August’s rate was 25.70%.
The floating of the Naira on the foreign exchange market in June did not help matters, but the country’s inflation rate had already been rising rapidly even before the fuel subsidy reduction strategy was implemented.
In his inauguration address on May 29, 2023, President Bola Ahmed Tinubu said that gasoline subsidies would be eliminated because they were not included in the fiscal year’s budget.
True to his word, Tinubu ended the decades-long fuel subsidy in June, raising the price of gasoline to N600 per liter from N180.
The event was followed by the implementation of forex reforms, which caused the value of the local currency to rise from N720/$1 in June 2023 to N915/$1 on the black market as of Monday. The official exchange rate for the dollar rose from N465 to N720 in June of that year.
In the last three months, these policies have affected the cost of living everywhere from groceries to gas to clothing to healthcare.
The inflation rate has increased as a result of the rising cost of gasoline and the falling value of the Naira on currency exchange markets.
After rising by 0.38 percent in June, when the fuel subsidy elimination and exchange changes were first implemented, Nigeria’s inflation rate soared by 3.39 percent between May and August.
The effects of inflation on the costs of goods and services had persisted while the exchange rate weakened.
The CBN decided in July to raise interest rates from 18.50% to 18.75% in an effort to curb rising inflation.
Nigeria’s central bank has taken action to curb rising prices, but so far it has had no effect.
Meanwhile, analysts are hopeful for change when Olayemi Cardoso was appointed Governor of the Central Bank of Nigeria.
Dr. Ayo Teriba, CEO of Economic Associates, said in an exclusive interview with DAILY POST on Monday that the country’s inflation will continue to grow unless the FX market is stabilized.
He remarked that CBN is not to blame for Nigeria’s rising inflation rate, but rather the country as a whole.
People were dissatisfied with the June inflation number because they had anticipated a spike due to the simultaneous elimination of fuel subsidies and unification of currency rates. Those of us who saw the effect pushed for it.
Exchange rates before and after unification at the BDC were N745/$1 and N925/$1, respectively. That’s what’s allowing inflation to continue. The main change is the updated official window. The exchange rate, which was N465 for $1 in June but is now N720, is a major contributor to price increases.
You can’t pump prices and it can’t control consumer prices as long as the currency rate fluctuates and Nigeria can’t stop it. That’s a macroeconomic issue, not a CBN one. Without a stable currency rate in Nigeria, the CBN is powerless.
The issue is with Nigerian society as a whole, not with the country’s monetary policies. Currency valuation is a problem of national sovereignty. The Minister or the CBN can’t handle this on their own. This is more common in rural areas. Everyone is doing their part, with the President at the helm. The lack of sufficient foreign reserves is the main issue. We have insufficient funds in foreign currency.
The President’s recent trip to India for the G-20 Summit is encouraging because it marks the beginning of his efforts to court foreign businesses. Monetary policy rates, such as the Cash Reserve Requirement (CRR), have less of an effect on the economy when the value of the dollar fluctuates wildly against other currencies. Inflation will level out if we finally end the currency exchange rate volatility.
He stated, “The question is how long it will take for the increase in the exchange rate to be reflected in retail prices.”
Prof. Godwin Oyedokun, an expert in accounting and financial development at Lead City University, Ibadan, said that loosening monetary policy was the wrong approach to take toward inflation.
When it comes to fighting inflation, I’ve long maintained that new approaches are required. There was no long-term benefit to the interest rate hikes that came with tightening monetary policy.
I think the incoming CBN Governor should look at the policies that have already been implemented before coming up with any new ones. It’s time for the country to calm down and figure out what will work best for her, he said.
The next CBN Governor and the federal government should ensure that budgetary policies are implemented correctly, according to Idakolo Gbolade, CEO of SD & D Capital Management.
The incoming governor of the Central Bank of Nigeria (CBN) and his staff need to look into the failures of his predecessor’s policies in great detail.
Inflation reached 25.80% in August due in large part to the new government’s plans of eliminating subsidies and liberalizing exchange rates.
The new governor of the Central Bank of Nigeria is responsible for ensuring cooperation between the bank and the ministry that oversees it. To revitalize vital economic sectors, the government must expeditiously distribute the lending facilities provided by the current administration.
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