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How FG goofed on inflation rate

By Babs Alasa

THE National Bureau of Statistics (NBS) reported last week a decline in the inflation and interest rates, which analysts attributed to the current banking reforms and the relative stability in the prices of crude oil which they believed may have returned Nigeria to the path of economic stability.

Data released by the Bureau showed that the nation’s annual inflation dropped to 10.4 percent on a 12-month basis in September from 11 per cent in August.

The composite Consumer Price Index (CPI) rose 10.4 percent year-on-year in September 2009 and it is slower than the 11 percent increase recorded in the previous month, the agency said in a report, giving no reason for the decrease.

According to the Bureau, the Urban All Item Index rose by 0.2 percent while corresponding Rural Index increased by 0.7 percent in September, when compared with the preceding month.

The Bureau stated that the year-on-year average consumer price level as at September 2009 for urban and rural dwellers rose by 8.1 percent and 11.5 percent, respectively.

While there is no doubt that interest rates may have fallen as a result of the massive bail-out funds injected into the banking industry in recent months, keen watchers of the Nigerian economy will readily confirm that the purported aggregate decline in the inflation rate is highly questionable, more so as the government agency could not adduce reasons for the said decrease.  In fact there is nothing happening in the economy to warrant a decrease in the prices of goods and services.

For the avoidance of doubt, inflation rate is the rate of change in the prices of goods and services in any economy over a given period of time, usually a year.

Globally, inflation rate is a veritable barometer for measuring the health of any economy and to a great extent, the standard of living of the people.  It is determined by the relative changes in the prices of a basket of randomly selected products over a time period and therefore measures the effectiveness of monetary and fiscal policy measures adopted by government to drive economic growth and development. Inflation rate therefore defines the systemic correlation between volume of goods in the economy and the amount of currency in the system chasing those goods.

Most importantly, it is a reflection of the productive base of the economy and its capacity to effectively provide the goods and services needed by the people.

Beyond mere political propaganda, it is a known fact that the prices of goods and services in Nigeria in the past one year, as before, have been on a steady rise. This is no thanks to the poor productive base of the economy, exacerbated by epileptic power supply, infrastructural decay, (especially the death traps called roads, which have received little or no government attention) and ill-conceived fiscal and monetary policy initiatives which have worsened the nation’s economic health.

How can inflation rate decline when the real sector is operating at less than 40 percent of installed capacity and factories are closing down regularly?  How can inflation rate fall when farmers and traders cannot move their products from one destination to another?  How can inflation rate slide when corrupt politicians and office holders are displaying sublime affluence amidst suffocating poverty in the land?

The unfortunate truth today is that Nigeria with all its enormous resources, has remained principally a consuming nation, importing virtually everything that is required by its citizenry.

The leadership of the giant of Africa has failed to create the enabling environment that will drive growth and development and reduce inflation rate in the economy.  This explains why despite being the 8th biggest producer of crude oil in the world, Nigeria is still largely dependent on imported petroleum products for its survival.

Kerosene which is indispensable to virtually every household in Nigeria now sells at N150 per litre in filling stations in Lagos, not to talk of other parts of Nigeria.  Or is it the price of a loaf of bread that has fallen?  Or food items, detergents, textiles, text books? Name them.

So, if the prices of these daily needs and household items are on the steady increase in the market place, as can be attested to by Nigerians, then which basket of products did the Bureau examine in arriving at the purported decline in inflation rate in the past one year?

Indeed, the time has come to call a spade a spade.  We should tell ourselves the truth and think of how to move the economy forward, if we are to achieve the ambitious goal of being one of the 20 biggest economies in the world by the year 2020, and stop playing politics with the lives of Nigerians and the nation’s economy.
Mr. Alasa, an analyst  on economic matters, writes from Lagos.

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