MPR hikes: Between inflation, and unemployment fights

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The Central Bank of Nigeria (CBN) has inadvertently admitted the excruciating pains it has inflicted on Nigeria’s beleaguered economy through its misguided fight against inflation.

In his inauspicious defence for the senseless hikes on monetary policy rate (MPR), the nation’s benchmark lending rate, Godwin Emefiele, CBN’s embattled governor lamented that between May 2022 and May 2023, the incessant MPR hikes have depleted credit to the private sector by a whooping N800 billion.

In May 2022, credit to the private sector stood at N1.4 trillion. By last week, it had plunged to N600 billion. That explains why Nigeria is battling unemployment rate sailing perilously close to 40 per cent.

With unemployment at calamitous proportions, jobs should be generated by easing lending rates while inflation climbs by a few rungs. By mercilessly stifling credit to the private sector through incessant MPR hikes, CBN has worsened Nigeria’s catastrophic unemployment crisis.

The sum of N800 billion in credit to the private sector can create a million jobs which would reduce Nigeria’s infamous stand as the world headquarters of poverty.

The irony in CBN’s one-handed fight against inflation is that the contribution of liquidity to Nigeria’s surging inflation rate is insignificant compared to the role of corruption, infrastructure deficit and primitive method of farming among others.

Food inflation, now surging at 25 per cent is at the root of the escalating headline inflation. Everyone knows that liquidity is not the cause of Nigeria’s food inflation.

A medium size tuber of yam leaves the farm in Gboko, Benue state at N300. It is sold in Lagos at N1, 500. That is not because there is too much money in circulation.

The cost of the yam escalates partially because Nigeria has no functional rail system. The yam is hauled by articulated truck that burns a minimum of 1, 000 litres of diesel from the farm in Benue to the market in Lagos.

At the current rate of N700 per litre, diesel alone adds N700,000 to the cost of transporting yams to the market. Consequently, the cost of transporting about 5, 000 tubers of yam to Lagos may be in the range of N1.5 million.

During the trip, the truck driver wades through a minimum of 200 check points derisively tagged toll gates. He spends a minimum of N500 at each of the check points to avoid harassment by law enforcement agents. That adds some N50, 000 to the cost of transporting the yams to the market.

At the market where the yam is off-loaded for sale to retailers, the market unions collect a minimum of N100 on each tuber of yam. The retailer makes a profit of N400 on each tuber of yam.

Consequently, the farmer who laboured to clear the land, till the soil, plant the yam, weed the farm three times a year before harvesting, makes less than 20 per cent of the market cost of the yam.

Infrastructure deficit, corruption by law enforcement agents at the illegal toll gates dotting the roads, greedy union members and retailers make more money from farm products and end up pricing them out of the reach of millions of Nigerians.

If the 5, 000 tubers of yam hauled by the articulated truck were loaded on a train coach, the transport fare would be less than half of what is charged by the truck driver.

Besides, the yam would evade the levy of corrupt law enforcement agents at the check points. The federal government has ignored the extortion by market unions. They contribute more to the surging food inflation than liquidity.

If the federal government clips the wings of the extortionist union members in the markets, food inflation would drop drastically.

Again, if the federal government rehabilitates the country’s rail system and extends rail lines sufficiently, CBN would not have to fight inflation persistently with an ineffectual instrument that has only succeeded in worsening Nigeria’s deplorable unemployment and poverty rates.

In an economy where a bungled currency redesign bid mopped up 80 per cent of the money in circulation and forced consumers to resort to trade by barter, CBN is worsening a bad situation by squeezing credit through senseless MPR hikes which has over the years failed to tame inflation.

The claim by CBN that MPR hikes have stopped inflation from rising above 30 per cent borders on intuitive assertions with catastrophic empirical evidence deficit. It sounds like mere delirium.

No one, not even the CBN has established an indubitable link between liquidity rate and surging food inflation. If anything, food inflation is caused more by infrastructure deficit and Nigeria’s primitive method of farming which is responsible for the massive supply deficit.

The time has come when CBN must choose between fighting inflation and unemployment since the two cannot be fought simultaneously.

With unemployment at alarming proportions, common sense dictates that CBN tackles unemployment by easing liquidity and allowing inflation to climb by a few rungs.

That suggests that the merciless grip on credit to the private sector amounts to chasing shadows. Inflation may not even climb one rung of the ladder if CBN eases its ruthless grip on credit to the private sector by reducing the cost of funds to create jobs.

In the last one year, CBN has raised MPR about seven times moving it from 11.5 to 18.5 per cent. Yet, inflation has surged by more than 10 per cent during the same period.

MPR hike has its own inflationary trend. Manufacturers have warned that the recent hike would torch off massive price hikes.

The defiant inflationary trend suggests that CBN fights inflation with the wrong instrument because that is the only weapon in its anti-inflation arsenal.

Federal government fiscal rascality worsens inflation. As CBN tightens the noose on private sector credit, it lends frivolously through ways and means to government to sustain its officials’ ostentatious lifestyle.

CBN’s one-handed fight against inflation is ineffective. Inflation can only succumb to combined assaults from fiscal and monetary policy instruments.