The Central Bank of Nigeria (CBN) is alone in its perception that Nigeria’s surging inflation is fueled by excess liquidity. CBN has inauspiciously pushed the monetary policy rate (MPR), the nation’s benchmark lending rate to a record 24.75 per cent, while banks cash reserve ratio (CRR) stands menacingly at 45 per cent in a desperate bid to mop up liquidity and tame inflation.
CBN complains that there is too much liquidity in the system and that the excess liquidity is used to chase the few forex in the market, thus pushing the exchange rate of the naira to catastrophic limits.
The apex bank believes that excess cash in circulation was responsible for the precipitous depreciation of the naira which saw the Nigerian currency trading at an abysmal rate of N1,860 to the dollar in February.
However, the same CBN has complained about 85 per cent of money in circulation being in private hands rather than in banks vaults.
The picture painted by the two contradictory stance of the apex bank is that the merciless grip on liquidity could as well be counter-productive, as high cost of funds caused by MPR hikes are transferred to consumers by way of higher prices of goods and services.
The CBN attacks on excess liquidity as the cause of inflation is a sharp contrast from the position of the National Bureau of Statistics (NBS), custodian of the nation’s economic data.
NBS report puts March headline inflation at 32.1 per cent while food inflation leisurely entered the 40 per cent danger zone. NBS blames the surge in food inflation on decaying infrastructure and high energy cost which ultimately escalated the cost of hauling food items from farms in Nigeria’s inaccessible rural communities to urban markets.
The pump price of diesel jumped to N1,500 per liter. An articulated truck loaded with tubers of yam from the farm in Gboko in Benue state burns a minimum of 1,500 liters of diesel to deliver the goods in the market in Lagos.
That translates to N2.25 million for the cost of fuel alone for the trip. If the transporter adds N1.5 million to the cost of the trip, the trader hauling the tubers of yam to Lagos would have paid something close to N4 million for transportation alone.
If the articulated truck carries 6,000 tubers of yam, transportation would have escalated the cost of the yam by a minimum of N700 per tuber. That explains the role of high cost of energy in the surging inflation as complained by NBS.
An extensive market survey by the Federal Competition and Consumer Protection Commission (FCCPC) equally blames high transport cost and multiple taxations for the surging food inflation.
Corruption is another factor behind the surging inflation rate. Rice merchants complain that they bribe corrupt Customs officials with N5,000 at every check point as they haul rice to the market.
Neither the NBS nor FCCPC ever mentioned excess liquidity in their narratives as cause of inflation. Infrastructure deficit takes most of the blame.
The corrupt Customs officials exploiting rice merchants could be avoided if Nigeria had a functional rail system.
Besides infrastructure deficit, high energy cost, official corruption, profiteering and hoarding stand out as major causes of inflation. Kano state government crashed the price of rice to N45,000 per 50kg bag when it compelled hoarders to open their warehouses.
The three tiers of government have lost total control of Nigeria’s price fixing mechanism. It is completely in the hands of merciless manufacturers, service providers, wholesalers and retailers.
Dangote Cement Plc stands out menacingly as classic example of a profiteering manufacturer. For the 2023 financial year, Dangote Cement is paying a record dividend of N30 per share. Consequently, the company is paying well over N500 billion as dividend to shareholders. No oil company pays that.
As competitors in the industry complain, Dangote was raking in 300 per cent profit when cement was selling at N5,500 per 50kg bag.
Sometime in February as the exchange rate of the naira plummeted to N1,860 to the dollar, Dangote pushed cement price to a record N15,000 in some communities in Nigeria.
The federal government was convinced that Dangote Cement and others in the industry were already profiteering at the price of N5,500 per bag. It summoned the cement manufacturers to a meeting and ordered them to revert to the old price.
Although the price of cement has been climbing down laboriously, it is still far from the old price that the federal government ordered the manufacturers to return to.
Last week they grudgingly pushed the price down to N8,000. No one knows whether they would ever obey the government directive to return to the old price.
One thing is certain about the surging rate of inflation in Africa’s largest economy. Excess liquidity has no hand in the plaguing phenomenon. The economy is plagued by cost-pushed, not demand-pushed inflation as CBN wants the world to believe.
CBN is merely chasing shadows by its merciless grip on liquidity as CRR stands menacingly at 45 per cent while its MPR hikes has pushed prime lending rates perilously close to 30 per cent.
Ironically, CBN merciless grip on liquidity and mindless MPR hikes are not responsible for the recent impressive performance of the naira in the foreign exchange market.
It is the improvement in forex supply and reforms that checkmate speculative biddings that sustains the massive appreciation of the naira.
Food inflation has defiantly climbed to the danger zone of 40 per cent because the CBN is tackling the wrong target as cause of inflation.
While the apex bank is tormenting the economy with liquidity squeeze and punitive cost of funds, official corruption, infrastructure deficits, hoarding, high energy cost and merciless profiteering are taking a toll on the naira’s purchasing power. No one knows when the CBN would retrace its steps and join in tackling the real cause of inflation.