The Central Bank of Nigeria’s financing of deficit, which has grown rapidly over the years, is highly inflationary due to the profound effect on money supply growth, the Lagos Chamber of Commerce and Industry has said.
The Director General of LCCI, Mr Muda Yusuf, said this in a chat with newsmen in Lagos on Wednesday while reacting to the May inflation reports by the National Bureau of Statistics.
The NBS, it would be recalled, had said that inflation in May dropped to 17.93 per cent, signaling an improvement from the 18.12 per cent recorded in April, which translated to 0.19 per cent decline.
The bureau recounted that composite food index rose by 22.28 per cent in May compared to 22.72 per cent in April, indicating a 0.44 per cent decrease.
It said there were increases in the prices of bread, cereals, milk, cheese, eggs, fish, soft drinks, coffee, tea and cocoa, fruits, meat, oils/fats and vegetables.
But in the view of the LCCI helmsman, the drivers of inflation have remained largely the same and are mainly supply-side issues.
According to him, some of these include the security situation, cost of transportation and logistics, energy costs, exchange rate depreciation, illiquidity in the forex market, climate change, among other variables.
“Monetisation of fiscal deficit has lately become an added factor. From month-on-month perspective, inflation accelerated across all parameters and this underscores the fact that inflation remains a major challenge to investors and citizens.
“Inflation is perhaps the biggest poverty accelerator because of the weakening of purchasing power. It weakens real income, erodes purchasing power, puts pressure on operating costs, aggravates production costs, reduces sales and negatively impacts profit margins across sectors,” Yusuf stated.
He, therefore, maintained that “tackling inflation would require fixing these supply-side challenges, reining in on fiscal deficit monetisation.”
