CEM INSIGHT, FINANCE | Since the break of 2023, Nigerians have had to deal with several economic potholes. The first was fuel scarcity. The lingering drama between the Federal Government and players in petroleum supply chain created scarcity of fuel leading to long queues at petrol stations and causing traffic jams on the highway.
The naira redesign policy – a second wave of potholes – has led to scarcity of cash and has erupted violence in certain parts of the nation leading to loss of life and destruction of property. The police and army have had to intervene in certain areas to restore normalcy.
Information got to CEM that violence was instigated by the President’s speech on Thursday 16th February.
Recall that the president had declared the N500 and N1,000 notes non-legal tender. He instructed the CBN to return the old N200 into circulation for another 60 days (April 10, 2023).
While security agencies were doing all to hold the peace, news broke that the Central Bank of Nigeria (CBN) has ordered deposit money banks (DMB) to collect the old N500 and N1,000 notes as against the earlier instruction to bring all old notes (expect N200) to the CBN.
CEM analysis of the situation, notes that the news might have brokered peace and restored hope to many Nigerians who had the old non-legal tender.
At Ijegun market, a CEM source reported that a woman was receiving old notes while her colleagues were rejecting them. Although she sold her products at a higher price. She sold her soft drinks for N250 instead of N200. It was reported that people bought in a hurry just to seize the opportunity to spend the old note.
As of the time of this report, CEM couldn’t reach the woman to find out how she exchanged the old notes for new ones.
CEM spoke with certain traders returning from work. David a dry cleaner narrating his experience said he had N500 and N1,000 but couldn’t pay for his fare and had to trek a long distance to make deliveries and collections.
The same was the tale by others who revealed that they had to pay before boarding any vehicle just because the driver and conductors did not want to encounter issues customers might pose with the old note.
Although the police said it has restored normalcy, one was not sure what the next day would be especially after the CBN debunked the news of instructing banks to receive the old notes.
CEM reported that the CBN debunked the news of instructing banks to receive the old notes as fake. The CBN maintained that the directives of the president on Thursday are the only legitimate information on the naira redesign policy.
Meanwhile, while the CBN claims that the redesign policy will help curb inflation amongst other economic challenges, the National Bureau of Statistics (NBS) in its latest inflation report, stated that inflation in January hit a record high of 21.82%.
It is worth noting that the naira redesign policy took effect in December 2022.
Inflation in the first month of the year increased by 0.47% when compared to the 21.34% recorded in the previous month. Food inflation surged to 24.32% in January from 23.75% recorded in December 2022.
Over the twelve months ending January 2023, the average annual food inflation rate was 21.53%, higher than the previous twelve-month average of 20.94%.
According to the NBS report, the increase in food inflation was mostly driven by the increase in the prices of Potatoes, Yam, and Tuber (6.06%), Vegetables (5.44%), and Meat (4.78%) amongst other products such as Fish, Fruits, Breads, and Cereals.
Core inflation, an index which monitors the price movement of all items except farm produce, stood at 19.16%. This was an increase from the 18.49% recorded in December 2022.
On a month-by-month basis, the core inflation rate was 1.82%, a 0.49% increase from December 2022’s rate.
While on a year-on-year basis, core inflation rose by 5.29%.
Urban inflation stood at 22.55%, showing a 6.38% increase year-on-year from January 2022. On a month-on-month basis, the urban inflation rate was 1.98% in January 2023, this was 0.17% points higher compared to December 2022 (1.80%).
Rural inflation, on the other hand, was 21.13%, a 6.08% increase/decrease from the corresponding period in 2022. On a month-on-month basis, the rural inflation rate was 1.77%, up by 0.14% points compared to December 2022 (1.63%).
With inflation still on a steady rise in the country while the naira redesign policy is still in effect casts doubt on its purported effect on inflation. We await next inflation report to either validate the last report or possibly utter the trend.