Following March inflation figures released by the Nigerian Bureau of Statistics (NBS), which showed inflation in the month of March to be at an all time high in recent years, tipping at 33.2%. In this exclusive interview by PLATFORM REPORTERS editor, Sylvanus Obasi with Mr Johnson Chukwu, a financial expert and Group Managing Director, Cowry Assets Management Ltd, he explained the factors driving recent high inflation rate in Nigeria and what government needs to do to address the situation.
He also warned Nigerians to gear up for higher food prices in the next three months which he described as the lean period. Even as he predicted that Naira could still appreciate against the dollar up to #900 per dollar in weeks to come. Enjoy the interview! Excerpts:
PLATFORM REPORTERS: The NBS just released a report that inflation in the month of March 2024 is at 33.2%. As a financial expert, how did we get to this point?
MR CHUKWU: I think we must recognize the fact that the economy has factored in the high cost of food in the country. The major propeller of this current inflation rate is food prices. And if you look at the inflation figures, you realise that if you disaggregate the 33.2% inflation rate, you will see that food inflation is about 40%, and is basically the food inflation that drove up the all-item inflation.
Remember the thing we are contending with food is that food production has actually slowed down. And I think we should be ready to deal with higher food inflation even in the coming months principally because we are moving towards the planting season; and there’s always a lean period in Nigeria after the planting season before the harvest season, and that lean period is between May, June and July; by August the harvest will start.
So we should expect further optics in food inflation in the coming months principally because the food belt of the country is actually going through security challenges. That is actually what’s driving the food inflation.
The other aspect is still related to exchange depreciation. Of course we are not yet seeing goods imported at the current exchange rate into the economy. We are still dealing with goods imported at the previous high exchange rate. So you have to deal with that.
Mr Johnson Chukwu, Group Managing Director, Cowry Assets Management Ltd.
Again, you have to also deal with the high cost of energy. As it stands today, the cost of fuel in some locations is close to #680 and #690 per litre, and diesel has not marginally come down. And you are also dealing further with increase in customs tariffs. So all those factors are what is manifesting. You have increase in cost of energy; increase in cost of food; naira depreciation as the factors driving the inflation.
PLATFORM REPORTERS: Talking about the security challenges affecting food production base in Nigeria. Don’t you think this should be the right time for government to allow massive importation of food items into the country?
MR CHUKWU: I think government has opened importation of rice through the border. But it goes beyond that because when you want to import, you have to deal with availability of foreign exchange, and you have to deal with the exchange rate. So it’s not as simplistic as saying once we open the borders that prices will moderate. This is because you have to translate that import into the current exchange rate.
So the basic solution is for us to increase food production locally and to do that, you need to address the issue of insecurity along the food belts of the country.
PLATFORM REPORTERS: Is this a long or short time solution?
MR CHUKWU: Clearly, addressing the issue of insecurity will take some time. So even if you do that now, they would have missed out the planting season. So you are looking at doing something that will allow them get to farm probably during the next planting season.
Government can take between this period and next planting season to deal with insecurity, then probably, we will begin to see moderation in food inflation.
PLATFORM REPORTERS: What will be your message to Nigerians at this point in time?
MR CHUKWU: My message is that it’s not all gloom and doom. I believe that by the time we get to July, we will begin to see some moderation in inflation rate. It doesn’t necessarily mean there won’t be inflation. It simply means that the rate of increase in prices will moderate.
It will no longer be as tip as they are now principally because at that point, we will begin to see goods imported at the current exchange rate come in and we are going to see the base effect because by the time you measure July inflation, you are measuring from a high base because you will be comparing July figures of last year to July of this year; and remember: by July last year, price has already gone up. So by that time, we will begin to see increase but at a slower rate.
But for Nigerians to enjoy that slowing inflation, they also need to enjoy increase in their income, and it is only when that increase in income comes that they can have some relief. May be for those in public service, and if that happens, the trickle down effect is that people in business will begin to get more patronage.
Mr Johnson Chukwu, Group Managing Director, Cowry Assets Management Ltd.
PLATFORM REPORTERS: Do you think Naira will still appreciate over the dollar in days or weeks to come?
MR CHUKWU: I think we are getting to a plateauing point where the appreciation in Naira will plateau. I can’t say we have gotten to the end, but the economic variables do not support further appreciation of the local currency because we are not seeing any improvement in our operating cash flow. That is, earnings from export of crude oil.
PLATFORM REPORTERS: So it could peg at this 1200 or 1100 per dollar?
MR CHUKWU: Ordinarily, it should not materially appreciate beyond what it is today. It could still get to #1000 or may be #900 per dollar, but I think the fundamentals of the economy do not support material appreciation beyond what we have today.
