My thoughts on Nigeria's inflation, and the rumored inflation reduction and price stability order.

I shared recently on my WhatsApp status how I wish I bought everything I needed, in 2015. It is funny but not funny.

The effect of inflation is brutal; you will feel it, it will feel you.

The unlettered man on the street cannot define inflation in textbook terms but understands the concept of inflation as clearly as those of us who can provide IMF worthy definition. Inflation is quite the leveler. The market is the teacher, and we are all learning together

Nigeria's inflation is largely cost-push. With the 'failed' exchange rate unification project and subsidy removals, citizens and the business community are left to contend with the foreseen and unforeseen consequences. One of the greatest economic tragedies that can befall a nation is galloping inflation. It diminishes value as cancer does to human life. It is why I hope those responsible for managing our economy are having half the amount of sleep as the rest of us. 

Rising inflation must be checked. First, by stemming the rise followed by policies targeted at reducing the inflation rate. While it may seem counterintuitive, with the benefit of introspection, I have come to accept that the sustained increase in MPR is in our best interest in the short term. We certainly do not want to combine an increase in price levels with more money in circulation chasing limited goods at ''whatever price''. The horrific consequences would be worthy of a limited series on Netflix. 

Understanding how we got here is important to getting out of the logjam. Let us start with the exchange rate. There is a bit of calmness on the FX front, coming from the daily N50-N100 devaluation of the naira with every rising of the sun. However, our currency cannot find its level at N1,500/$. I am convinced based on fundamentals that the Naira is undervalued at the current rate. You can only trust the Naira to find its value when you have an effective FX market not influenced by all sorts of sharp practices we have come to know since the failed exchange rate unification exercise. This is why, for instance, insider dealing is forbidden in stock markets. In gambling, players are punished when they are found to be influenced by punters/bookmakers. We should have sanitised our monetary policy space, specifically the FX market, before leaving the naira to find its level. The litany of policy circulars issued by CBN in the wake of the unacceptable level that the naira found itself should have happened pre-unification. Notwithstanding, we need to keep a watchful regulatory eye on the FX market and keep sharp practices out of play. CBN is doing well in this regard but must remain alert and well ahead of the curve. Speculators are relentless.

As we work towards a market-reflective exchange rate, devoid of manipulation, MPR has to stay high, sadly with the unavoidable consequence on borrowing and prices. This is why we must adopt a multi-prong approach. While the nation's headline inflation is around 33%, food inflation is well over 40%. It is said that food, shelter, and clothing are basic human necessities. Of these necessities, food is unarguably more basic. There is a saying that when a person's poverty situation is devoid of hunger, he/she cannot be considered poor anymore. Until we create a balance in the wheels and alignment of our FX market, the government must ensure that its people can feed. It is not only necessary for the survival of the people, that they can afford basic food but also for the government. Uncontrollable riots and civil wars are well documented, in history, to have emerged from hunger. When the pain of hunger strikes, President Tinubu's rhetorical message of perseverance, light at the end of the tunnel, and a stronger future that awaits goes out through the window if ever it was welcomed into the homes of millions of hungry Nigerians.

The inflation reduction and price stability order, which must now be prefixed with rumored, given that it was released unofficially (leaked), is a good step in the right direction. Among other initiatives documented in the order, I noticed a commendable focus on reducing the prices of basic food through the exemption of VAT and import duties on food, raw materials, and agricultural inputs. It is not only important to reduce food-related taxes, we must also get our farmers working without fear of threat to their crops or lives. The cost of transportation must get special attention with a view to reducing the impact on food prices. In this regard, the suspension of VAT on diesel is good and perhaps should be permanent. Haulage services in respect of goods should also be exempted from VAT. Taxation as a fiscal policy instrument should not only be an instrument for generating maximum revenue but should also be used for causes like this- fighting inflation. I hope for the sake of this government that the document has been denied only because it has not been signed and the possibility that more positive reliefs may be included.

In this moment, the government must not only sacrifice but must also be seen to be sacrificing. The Federal Government should conscientiously harmonise its fiscal and monetary policies as it fights inflation. Since wasteful spending is cultural and cannot be stopped, I urge governments across all levels to suspend financial recklessness until we can afford profligacy yet again.