How Govt Palliative Is Worsening Food Inflation – Cardoso

Posted by Nwa Diokpa Latest Headlines, News Across Nigeria Saturday, May 4th, 2024

(AFRICAN EXAMINER) – The Governor of the Central Bank of Nigeria, Olayemi Cardoso, has stated that the large purchase of foodstuffs by the government as palliatives is contributing to the increase in food inflation in the country.

Cardoso stated this during his contributions in the March Monetary Policy Committee, which was published on the website of the CBN.

It could be recalled that the MPC increased the benchmark interest rate to 24.75 per cent, from 22.75 per cent and the reason for this is to combat inflation.

However, the country’s inflation rate increased to 33.2 per cent in March, with the food inflation rate getting to 40.01 per cent, a year-on-year increase of 15.56 percentage points from 24.45 per cent in March 2023.

Speaking about this development, the CBN governor disclosed that inflationary pressure had failed to reduce irrespective of the increase in the interest rate in February.

He said: “Despite notable stability in the foreign exchange market resulting from decisions taken at that 293rd MPC meeting, inflationary pressure remains unabated. While there is the argument that the significant tightening since the last MPC meeting is yet to fully permeate the system and yield its expected impact, the risk of galloping inflation persists. If such a hyperinflationary scenario is to become reality, available options to control inflation could be severely constrained. From the facts presented to the MPC, there is a clear indication that the monetary factors contributing to inflation are diminishing in their significance.

“This could be considered as evidence of the impact of decisions reached at the 293rd MPC meeting. Staff reports show that the principal drivers of acceleration in inflation are hikes in food and energy prices which are associated with structural factors. Further, new dimensions of inflationary pressure are emerging. First, ‘seller inflation’ arising from the oligopolistic structure of commodity markets such as noticed in the prices of local commodities is gaining significance. In addition, huge purchases by the government for distribution as palliatives to vulnerable citizenry is adding another dimension to the food price inflation, with seasonal factors of food price increases during religious fasting and festive periods, adding price cyclicality.”

He further disclosed that the new sources of inflation were better addressed by the fiscal authorities so that it will complement the efforts of monetary policy.