Several passages in the NBS’ report describe changes as percentages when they are more accurately percentage point changes. And we need to remind ourselves that lower inflation rates simply mean prices are rising more slowly, and not that domestic prices have returned to earlier levels. None of these changes the general direction of the report’s findings. On balance the NBS’ August report supports a “hold the gains, fix food supply” strategy…
Do the National Bureau of Statistics’ (NBS) numbers on the economy’s performance still count for much? No, if we are to take the Tinubu government’s spokesperson on matters economic seriously. Yet, the recently released consumer price index (CPI) report by the NBS for August contains a fistful of brownie points for the federal government’s management of the economy. With headline inflation falling ever so slightly from July’s 15.43 per cent (on an annualised basis) to 15.39 per cent in August and from 1.57 per cent to 0.71 per cent on a month-on-month measure, it would seem that the economy has entered broad disinflation territory. Core inflation, that is, after excluding volatile farm produce and energy prices, stood at 13 per cent year-on-year and fell by 0.06 per cent month-on-month.
At Plot 33, Abubakar Tafawa Balewa Way, Central Business District, Abuja, doves might even begin to argue for a cautious eventual easing of domestic monetary conditions. As the economy struggles to shake off the lethargy of the Buhari years, there are few arguments for the management of the economy today stronger than the need to enhance private sector investment and capital formation across the country.
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Desirable, though, this course of policy travel might seem, the turn in the direction of interest rate movement that will head things that way ought not to happen soon. The unfortunate war in the Gulf does not look like it is about to end soon, accordingly upward pressure on domestic prices from elevated energy costs will remain a source of anxiety for some time yet. Moreover, although underlying non-food and non-energy price pressures are moderating, food inflation is still elevated at 19.57 per cent.
How strong is the rationale for a targeted strengthening of social protection, improvement of food security interventions, and upgrading of rural logistics? Relatively so, because, at 6.16 percentage points, food and non-alcoholic beverages contributed the most in August to annual headline inflation. Much of the food is produced in our rural areas.
Rising to 1.79 per cent month-on-month in August, compared to a deceleration in inflation in our urban areas to 0.28 per cent, rural inflation is a third source of worry. The divergence between both the urban and rural inflation prints indicates that beneath the improving health of the national average, two things (neither salutary) might be at play: households, especially lower income ones, are unlikely to experience the headline improvement as a meaningful fall in living costs; and purchasing power outside our urban centres may be getting worse. To take the foot off the economy’s monetary brakes at this juncture might, thus, see energy price inflation, food inflation, and large regional price shocks quickly feed back into inflation expectations, wages, and exchange rate demands.
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How strong is the rationale for a targeted strengthening of social protection, improvement of food security interventions, and upgrading of rural logistics? Relatively so, because, at 6.16 percentage points, food and non-alcoholic beverages contributed the most in August to annual headline inflation. Much of the food is produced in our rural areas. Government’s priority should, therefore, be to boost workable supply-side incentives to drive productivity in both agriculture and our rural economies. Farm security, post-harvest storage, efficient transmission corridors from farm gates to markets (including through improved market access), targeted agricultural extension services, and the removal of all lets to the functioning of proper markets in these places immediately recommend themselves.
A much more powerful case may be made for improving the makeup of public spending. The main benefit here is that disinflation is positive for investment planning and real incomes. If nothing at all, as with the case against broad price controls to help with the underperformance of the agriculture sector, lower core inflation does not create room for untargeted fiscal expansion. The only pass-through from this is to higher domestic prices, whereas the task before managers of the economy, today, is to build productive infrastructure and support vulnerable households. The disadvantage, in other words, is that food inflation staying consistently above the headline print means that both poverty and nutritional risks worsen.
If policy is to work effectively, government will need to disaggregate the national average, in order to focus on state-level diagnostics. Not just because it is then easier to allocate reliefs and identify supply disruptions, but because spending to boost growth and poverty will deliver the biggest buck at the sub-national level.
Admittedly, the sharp variations in the inflation numbers for the states matter. If policy is to work effectively, government will need to disaggregate the national average, in order to focus on state-level diagnostics. Not just because it is then easier to allocate reliefs and identify supply disruptions, but because spending to boost growth and poverty will deliver the biggest buck at the sub-national level. So, the puzzle before our public policy wonks should be how to stabilise food prices over the long-term and not just how to drive down aggregate CPI numbers.
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It would be remarkable were there nothing to cavil at in the report. Several passages in the NBS’ report describe changes as percentages when they are more accurately percentage point changes. And we need to remind ourselves that lower inflation rates simply mean prices are rising more slowly, and not that domestic prices have returned to earlier levels. None of these changes the general direction of the report’s findings. On balance the NBS’ August report supports a “hold the gains, fix food supply” strategy: preserve credible anti-inflation policy while concentrating fiscal and administrative action on food production, security, distribution, and vulnerable rural households.
Uddin Ifeanyi, a journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
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