Nigeria’s inflation rate is now at 16.82%, according to the National Bureau of Statistics (NBS). NBS, in its latest report, says the Consumer Price Index (CPI) which measures inflation rate, on a year-on-year basis, increased from 15.92% in March, 2022, to 16.82% in April. 2022. And on a month-on-month basis, the headline index, according to NBS, increased from 1.74% in March, 2022, to 1.76% in April, 2022.
To this end, as part of measures to
ensure that Nigeria’s inflation figure does not become unbearable, the country’s
apex bank – the Central Bank of Nigeria (CBN), in its May, 2022 Monetary
Policy Committee (MPC) meeting, held recently, raised its Monetary Policy Rate
(MPR) from 11.5% it had been since September 2020, to 13%. The 11.5% rate was
in a bid to stimulate recovery from the recession witnessed due to the COVID-19
pandemic.
For non-students of economics, MPR is the interest rate at which CBN lends to commercial banks. The MPR is the benchmark against which other lending rates in an economy are pegged and is usually used as an instrument to moderate inflation. In other words, MPR is a benchmark interest rate at which commercial banks are to charge persons seeking loans. You can call it a lending rate.
Increasing the MPR, in our opinion,
won’t reduce Nigeria’s inflation rate. Why? The country’s inflation is more of
cost-push than demand-pull. There is global inflation and many countries have
increased their benchmark interest rates – perhaps the reason CBN is doing
same. But unlike what is obtainable in other economies, Nigeria’s inflation is
not driven by high demands for goods and services because things are expensive;
cost of living is very high. Things are expensive because cost of production is
also high. Hence, Nigeria’s inflation is not caused by increase in demand, but
by the high cost of producing goods or services. A Loaf bread for instance, has
increased to around N600 from around N300 it used to be.
Now, increasing the MPR as it has been
done will make inflation to bite even harder because businessmen and women will
find it really hard to access loans. And for those who will be able to access,
they will, as always, pass on the burden to consumers by way of increasing
prices for goods and services. Therefore, we hope that MPC in its next meeting
will contract the MPR by reviewing it downward.
Excellent
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