Godwin Emefiele: Nigeria’s rising inflation consistent with global trend

The governor of Nigeria's central bank, Mr Godwin Emefiele, explained on Friday that the country's headline inflation rate, which has risen from 15.60% in January to 20.77% in September, is in line with global trends.

The governor of Nigeria’s central bank, Mr Godwin Emefiele, explained on Friday that the country’s headline inflation rate, which has risen from 15.60% in January to 20.77% in September, is in line with global trends.

This was announced by Emefiele on Friday night in Lagos at the 57th Annual Bankers Dinner hosted by the Chartered Institute of Bankers of Nigeria (CIBN).

The timing and subject matter of the dinner, “Radical Responses to Abnormal Episodes: Time for Innovative Decision-making,” were perfect.

In addition, he mentioned that headline inflation had risen to 20.77 per cent in September, marking eight straight months of uptick, and that this rising momentum came after a successive period of fall in 2021 due to balanced monetary policy operations.

According to him, global factors compounded existing local imbalances to undermine price stability, which led to further upward pressure on consumer inflation throughout the year.

“Food remains the significant component of the domestic consumer price basket. The annualised uptick in headline inflation mirrors the 6.21 percentage points upsurge in food inflation to 23.34 per cent in September.

“During this period, core inflation also resumed an upward movement from 13.87 per cent in January to 17.60 per cent.

“In addition to harsh global spillovers, exchange rate adjustments and imported inflation, inflation was also driven by local factors such as farmer-herder clashes in parts of the food belt region,” he said.

According to Emefiele, the global economy suffered the worst decline since the Great Depression in the first half of 2020 due to the spread of the COVID-19 pandemic.

According to his estimates, the impact reduced global GDP by 3.1% in 2020 and caused widespread chaos in the commodity markets as the price of crude oil fell by more than 70%.

According to him, the global economy was already reeling from the aftermath of the pandemic when the conflict between Russia and Ukraine broke out.

He claimed that sanctions imposed on Russia by the United States and its allies as a result of the conflict had contributed to a rise in the price of crude oil.

He explained that the tightening of global financial market conditions and the large outflow of capital from emerging nations were the results of efforts by developed markets like the United States to curb growing inflation by increasing their policy rates.

“The subsequent strengthening of the US dollar further aggravated inflationary pressures, a weakening of currencies, and depletion of external reserves in many emerging market countries.

“Today, nearly 80 per cent of countries have reported heightened inflationary pressures due to a confluence of some of the factors mentioned above,” Emefiele stated.

He elaborated on why this was the case, saying that central banks in emerging markets and developing countries were also constrained to hike rates to curb increasing inflation. This would likely slow global growth over the next year.

“The short-term global growth projections by the IMF have been downgraded three times in 2022 and are likely to be below the 3.2 per cent and 2.7 per cent estimates for 2022 and 2023, respectively.

“Average growth among advanced economies is projected to plunge from 5.2 per cent in 2021 to 2.4 per cent in 2022 and 1.1 per cent in 2023.

“Estimated output growth in emerging markets is expected to slow from 6.6 per cent in 2021 to 3.7 per cent apiece in 2022 and 2023,” he said.

He noted that export limits were increasing from many nations due to food, energy, and cost-of-living concerns.

“As at the last count, about 23 countries, mainly in advanced economies, according to the World Bank, have banned the export of 33 food items. 

“Seven other countries have additionally implemented various measures to limit food exports,” said Emefiele.

 “Analysis of the key challenges primarily indicated a significant hoarding of banknotes, as over 85 per cent of the currency in circulation were held outside the banking system,” Emefiele said about the redesign of the country’s currency.

“This is even as currency in circulation more than doubled from N1.46 trillion in December 2015 to N3.23 trillion in September 2022; a worrisome trend that must be curbed.”

In light of the increased minting of the eNaira, he predicted that the strategy would hasten the advent of a cashless economy.

His claims include that the new banknotes will make use of the banking system less attractive and that the increased effectiveness of the monetary policy will lead to lower inflation.

Dr Ken Opara, president of the CIBN, had previously praised Emefiele, adding that he had remained purposeful throughout the year in insulating the economy from the fallout of the fourth wave of the COVID-19 pandemic.

He applauded his work to keep inflation and related economic indicators, primarily the naira, undistorted by falling output levels caused by factors such as high cost of production, insecurity, shrinking government income, foreign exchange volatility, and uncertainty in the global oil market.

Opara added, “through the careful management of the Monetary Policy Rate (MPR), the CBN continued to drive the recovery path of the Nigerian economy through the expansion of credit to the real sector, guided management of foreign reserves and promoting sound financial environment and monetary policy.”

At the Annual Bankers’ Dinner, banking industry members can discuss the past year’s successes and failures, network with peers, and look ahead to the coming year with a more informed perspective.

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