THE economic outlook for inflation is not favourable, and the pressure points are clear. As at the second week of December 2019, the National Bureau of Statistics, NBS, had yet to announce the inflation reading for the month of November 2019.

Investors anticipate higher rates as CBN sells N169.85bn TBs

But based on some analysts’ surveys and reports, headline inflation for November is projected to increase to 11.88 percent, while the December reading would likely tip over to close the year at 12 percent.

It is noteworthy that headline inflation has increased for three consecutive months so far. There have always been the conventional inflationary pressure points across almost all economies such as money supply, interest rate, exchange rate, food and agro output dynamics.

As usual Nigeria would present its own peculiarity. Hence, in the current upticks the key factor is more outside the conventional – the border closure, which has impacted negatively on the consumer price index as well as the core inflation.

It is noteworthy that the rising consumer price index was coming at a time of agricultural food harvest. This shouldn’t be. In as much as the government has its reasons for the border closure the policy integrity should be justified by the outcome, including the unintended consequences such as this inflationary pressure. We therefore, call for a mitigator.

But we must also point at other contributory factors such as the level of liquidity (money supply) which has also increased as reflected in the 3.95 per cent increase in the credit to the private sector.

In fact, broad measure of money supply (M2) in October grew at an annualised rate of 2.07 per cent to N27.63 trillion, and analysts anticipate a further increase in November as banks increase lending to customers in a bid to meet up with the Central Bank of Nigeria, CBN, new lending policy ratio of 65 per cent.

Currency in circulation increased to N2.06 trillion in October from N2.02 trillion in August. But the other monetary components of inflationary pressure points – interest rate and exchange rate, have been in a mixed bag.

The anchor rate, CBN’s Monetary Policy Rate, MPR, has been left unchanged at 13.5 percent since March 2019.

However, some of the CBN’s unorthodox policies have seen lending rates decline by an average of 400 basis points in the last four months.

Lower interest rates incentivise consumers and corporate entities to borrow more, thus increasing the amount of money in circulation.

Though the exchange rate has been relatively stable across all market segments for some months now, the douser-effect on inflation has been crowded out by the border closure and money supply.

Yuletide activities put further pressure on inflation rate

We, therefore, call for both fiscal and monetary policy buffers to tame the unintended consequences of these policies on the inflation trend.

Vanguard