Nigeria's inflation rate at 11.9% and CBN retains interest rate at 12%

The inflation rate in Africa’s most populous nation and second largest economy slowed down a little bit at 11.9 percent in February. It came as a surprise as the prevailing view stated that inflation will skyrocket due to partial removal of the fuel subsidy by President Goodluck Jonathan on January first of this year. Before the fuel subsidy removal inflation rate was hovering at 10.3 percent in December 2011. While in January it etched up to 12.6 percent and Sanusi’s Central Bank of Nigeria (CBN) predicted that inflation rate would reach up to 14.5 to 15 percent this year before it moderates to 10 percent in 2013.

Surprisingly, inflationary pressure is gradually winding down and 11.9 percent inflation rate shows that the devastating impact of fuel subsidy removal as expected was not biting so deep. The deflating price of food price index was the principal reason for the slowing inflation. The record from National Bureau of Statistics (NBS) shows that food price index decreases from 13.1 percent in January to 12.9 percent in February. And this minor alteration in the food index does have a profound effect on the state of inflation because it accounts more than 50 percent of consumer price index (CPI). In the determination and tabulation of inflation rate the essential tool is consumer price index which constitutes the prices of foodstuff and consumer products including petroleum products.

The impact of the fuel subsidy removal which contracts disposable income with the rising price of the food and fuel products is a reality. Testament is seen when compared to the recent 12.9 percent food price index to that of last year which stood at 12.1 percent before the removal of fuel subsidy.

Sanusi’s Central Bank of Nigeria (CBN) retains the interest rate at 12 percent. That comes as no surprise after raising interest rates consecutively for six percentage points in a role to aggressively checkmate the rising inflationary trend and to reverse the losing value of naira. The Central Bank of Nigeria and its members of the Monetary Policy Committee (MPC) have no need at this time to raise interest rate. The executive arm of the government is working with country’s parliament to rein in spending in the current expenditure and for the country to live within its means.

International Monetary Fund (IMF) in its recent review of the country’s economic activities urged the Sanusi’s CBN to desist from the jacking up of the interest rate. The further tightening of the monetary tool to mop up liquidity maybe waning without any fiscal pact with the executive to contribute in taming inflation and sizing up naira value.

Written by
Emeka Chiakwelu
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