Further Decline in Inflation Rate Doubtful — Economists

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  • Further Decline in Inflation Rate Doubtful — Economists

A professor of Economics at the University of Lagos, Ndubuisi Nwokoma, noted that being an election year, there would be a scramble for power, with politicians wanting to outspend each other to gain mileage.

He stated that for there to be a consistent reduction in inflation rate, there had to be a careful management of monetary and fiscal policies.

He said, “I fear for this year because of the approaching elections. Politicians will likely overheat the economy with so much spending. If that happens, the rate will not fall as fast as it is falling now, or may even increase. It is advisable that if they cannot make it fall further, they should just make it stagnant and not increase.

“If you look at the inflation rate at face value, you would be deceived. The rate is still high because if you look at the rate when the current government took over in 2015, it was a single digit, but by virtue of the policies of this current government, the rate went up to double digit.”

According to Nwokoma, what the country is experiencing is a management of monetary policies.

“Inflation rate is still not low enough because it is still higher than what it was three years ago. There have been tightened monetary policies, because the monetary policy rate has been fixed at 14 per cent, which has made credit to be quite tight. The fall in the interest rate can only continue if the tightening of the interest rate continues. If what is happening to monetary policy changes, then things may turn around,” he said.

He added that the MPR should not be reduced as it would reverse the gains and make cost of borrowing cheaper.

Nwokoma noted that if MPR was higher than the inflation rate, return on capital would become negative, which would worsen the inflation rate.

“In order to achieve this, the government has to focus on fiscal policies, while the CBN should focus on monetary policies. However, this is doubtful because politicians want to come back for second term; they would all be overheating the economy through unnecessary expenditure,” he added.

A professor of Economics at Olabisi Onabanjo University, Sheriffdeen Tella, stated that a continuous reduction of inflation rate would be assisted by reduced cost of production.

According to him, when prices of inputs and cost of production reduce, inflation rate will also go down.

He said, “When we continue to produce locally, inflation rate will go down. We have to work on the exchange rate, because if it reduces, cost of production will be cheap and inflation would reduce.

“It is important to note that Inflation rate is a composite rate of other rates. Inflation rate for food cannot come down yet because we are not in the harvesting period. Some imported goods will be lower because the naira has stabilised over time, and only cost of credit can make it higher.”

According to Tella, when harvesting period approaches, prices of imported goods will fall, causing the economy to expand and pushing both exchange and inflation rate lower.

He added that if there was no shock form the oil sector, the economy would improve and create stability over time.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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