The surging inflation has had a devastating effect on citizens welfare and the health of small businesses. Headline inflation accelerated to 24.08% in  July as against 22.79 in June.

Food inflation maintained its upward trajectory, accelerating to 27%. 

Evidently, we are yet to see an abatement to the key factors fueling inflation. The inflationary pressures have intensified. 

Some of these factors are global, others are domestic. 

These factors include the depreciating exchange rate, spike in energy prices, rising transportation costs,  logistics challenges,   forex market illiquidity, hike in diesel cost,  insecurity in many farming communities and structural bottlenecks impeding productivity.  These are largely supply side and policy concerns.  But the petrol price increase following the fuel subsidy removal and the sharp depreciation in the exchange rate were dominant factors.

Mounting inflationary pressures have the following consequences for the economy:

  • Weakening of purchasing power of citizens as real incomes are eroded thus aggravating poverty incidence. 
  • Escalating production costs which negatively impacts profitability
  • Erosion of  shareholder value in many businesses.
  • Weakening of investors’ confidence. 
  • Declines in manufacturing capacity utilization as a consequence of weakening sales and erosion of profit margins.

Tackling inflation requires urgent government intervention to address the challenges bedeviling the supply side of the economy.  It is imperative to urgently fix production and productivity constraints, stabilize the exchange rate by ensuring liquidity in the forex market, tackle insecurity, accelerate efforts to ensure domestic refining of petroleum products and fast-tracking tax and fiscal reforms to curb escalating deficit spending.

To give producers and citizens some relief,  the government should tweak the tariff policies by granting concessionary import duty on intermediate products for industrialists, especially those in the food processing segments of the agriculture value chain.

Dr Muda Yusuf