NECA’S OPINION ON RISING INFLATION

Inflation Rate Increased to 12.26% in March 2020 amid Covid-19 Pandemic. The Covid-19 pandemic has forced lockdown all over the world, including Nigeria with governments ordering their citizens to stay at home to prevent further spread of the virus. This is a global pandemic, which has led to cancellation of several local and global events, sharp drop in crude oil prices, uncertainty in financial markets, collapse in air travel requests and global manufacturing and supply chain disruptions, among others. This has caused disruption in economic activities, and in effect pushed up prices of food and essential items.

Following the release of the March, 2020 Consumer Price Index, the Inflation rate has increased by 0.06% from the February, 2020 figure to 12.26% rising for the 8th consecutive month and the highest inflation rate the country has recorded in 23 months. With the lockdown and closure of businesses, it is believed that recession looms in the economy amidst the rapid spread of COVID-19 pandemic.

Early containment of the spread of the virus and resumption of economic activities, coupled with various fiscal and monetary interventions by the authorities; that is, conventional policy measures currently being taken such as reducing interest rates and costs of borrowing, tax cuts and tax holidays are quite remarkable. However, these conventional policy measures are quite potent when there are demand shocks.

There are limitations to the successes that can be recorded when demand shocks are combined with supply shocks. It is already apparent from the emergence of the current crisis that there are implications on the economy from both the demand and supply sides. Some of the demand factors include social distancing with consumers staying at home, limitations in spending and declining consumptions. On the supply side, factories are shutting down or cutting down production and output, while in other instances, staff work from home to limit physical contact.

Policy measures to address the demand and supply shocks will help in addressing the rising inflation rate as well as stimulating the economy ahead of the potential recession.