Should we be concerned that over the last six (6) months rising food prices have been the single most important cause of the upward movement in headline inflation numbers? The year-on-year price change for the “All Items Price Index” (as measured by the Nigerian Bureau of Statistics — NBS) closed August 2014 at 8.5%, from 7.7% in February. However, over the same period, the year-on-year change in the food index averaged a 13 basis points (one-hundredth of a percentage point) increase every month from February (when it stood at 9.2%) to reach 10% by August 2014.
With the core inflation measure (what the NBS refers to as the “All items less Farm Produce”), however, down for the second consecutive month in August, monetary economists might be more sanguine about the overall inflation trajectory (and pace). It is precisely because of their “volatility” that food and energy price measures are backed-out of the core count. Moreover, because monetary policy tools are aimed at the stickier measures of price changes, the central bank could equally argue that any concern over headline numbers at this point may well be overdone. Albeit, it ought to be noted, sotto voce, that CBN had indicated 9% as its target upper bound for headline inflation this year.
Notwithstanding, the headline numbers matter for different reasons. Not just because they are the numbers that we see when first we browse through the media. Incidentally, the headline numbers matter in spite, and not because of the other worries to which they draw our attention. Certainly, the fact of rising domestic prices offers a strong opportunity for re-interrogating the official storyline over how successful the federal government’s portmanteau of reforms in the agriculture sector has been.
Put simply, rising prices are the concomitant effect of any of a combination of two things: rising demand in the face of continuing supply constraints. Or persisting supply shortfalls even as demand either remains unchanged, or rises.
For the sake of argument, I concede to the truth of President Jonathan’s claim that his government has successfully cut the incidence of poverty in the land by half. Existing numbers on how much of our people live below the poverty line were always dodgy anyway. By extension, if indeed this government has taken about 56 million people out of poverty over the 5 or so years it has been in office, it is then possible to blame rising demand from an increasingly affluent populace for driving the rise in food prices. However, this would also mean that domestic food production, contrary to the claims from the agriculture ministry, has failed to keep up with demand.
In government’s defence, there is an outside chance that our noveau riche (most of them concerned to sanitise their newly found wealth) may have turned to buying up commodities in the local market. (Recall that the financialisation of commodities was a hedge — against value erosion — to which global fund managers resorted to at the nadir of the Great Recession). If this is the case, then despite the significant successes notched up by government’s reforms of our agriculture practices, this new demand source could still drive up food prices.
Interestingly, as the dollar strengthens on the back of better economic statistics in the United States, investments are shifting out of commodities worldwide; and, in turn, global commodity prices are falling across categories. We thus are denied the expedient of blaming our appetite for imported food items for this new inflation trend. We evidently confront a homespun problem here.
Which of them? I have heard arguments to the effect that Boko Haram’s attempts to isolate Maiduguri (you can only get into that town via the Kano – Maiduguri road) may have helped push food prices up. But this low intensity warfare has been with us for like “forever” now. So why is it only now having this effect? Discountable? I would presume so.
Disturbing though all these potential causes of the burgeoning crisis in the food sector may be, by far the naughtier is the consequence of rising food prices for the over 50 million other Nigerians that the Jonathan government’s focus on “stomach infrastructure” has inadvertently missed. Giving that spending on food constitutes a growing share of household expenditure as one travels down the income ladder, rising food prices cannot be good for the poor and vulnerable sectors of our economy.