CBN FX policy, import restrictions responsible for rising food inflation in Nigeria – World Bank

CBN FX policy, import restrictions responsible for rising food inflation in Nigeria - World Bank

The Central Bank of Nigeria’s (CBN) foreign exchange policies and import restrictions are mainly responsible for food inflation in Nigeria, the World Bank has cautioned.

This disclosure was made in the latest edition of the World Bank’s biannual study, Africa’s Pulse.

According to the World Bank, “Rising food prices are the underlying factor behind the surge of headline inflation in Nigeria. Food prices have increased due to import restrictions and a nonflexible exchange rate management.”

Nigeria’s inflation rate surged to a five-month high, reaching 15.92%, representing 0.21% increase from the 15.7% rate recorded in the previous month as shown in the recently released Consumer Price Index (CPI) report for March 2022 by the National Bureau of Statistics (NBS).

The bureau attributed this increase to the 17.2% rise in the food index, while the core inflation stood at 13.91% for March 2022.

The World Bank further added that CBN forex policy is holding the local currency artificially strong in the I&E window while the currency remains weak in the black market.

“The current regime is keeping the official exchange rate of the naira artificially strong while the naira has weakened significantly on the parallel market. Additionally, the central bank has restricted importers’ access to foreign currency for 45 products and has reduced the supply to other importers.”

The World Bank further said that, “Inflation reached a four-year high at 18.2 per cent in March 2021, then eased to 16.0 per cent in October 2021 as food price inflation fell from a peak of 22.9 per cent in March to 18.3 per cent. Headline inflation rose to 15.7 per cent in February 2022, up by 0.1 percentage point from the two preceding months.”

Food and fuel shortages took a toll on consumer prices and that the crisis in Ukraine will certainly aggravate inflation rates, the bank added.

“Food and fuel shortages put pressure on consumer prices despite fuel subsidies. Inflation is expected to remain high as the negative effects of the war in Ukraine are still coming through, with an annual projection of 14.8 per cent for 2022. Going forward, headline inflation is forecast to decline gradually to 13 and 11 per cent in 2023 and 2024, respectively.”

Nigeria’s regulatory bank in 2015 began the restriction of some commodities from accessing forex at the official rate through the Investors and Exporters (I&E) window with 41 products.

It said the restriction was needed to conserve the country’s foreign reserve and stimulate local production of the restricted items.

 

 

Author: Greg