Government Palliatives Aggravating Food Inflation, Says CBN Governor

The Central Bank of Nigeria (CBN) Governor, Dr. Olayemi Cardoso, has raised concerns over the impact of government palliatives on food inflation. He stated that the government’s large-scale purchase of food items for distribution to the poor is exacerbating the already soaring food prices, contributing to the country’s climbing inflation rate.

Cardoso’s remarks were part of his comments during the March Monetary Policy Committee (MPC) meeting, which were made public on the CBN’s website. At the meeting, the committee decided to increase the benchmark interest rate to 24.75%, up from 22.75%, as part of its ongoing efforts to curb inflation.

Despite these measures, Nigeria’s inflation rate surged to 33.2% in March 2024, with food inflation hitting 40.01%, a significant year-on-year increase from 24.45% in March 2023. The National Bureau of Statistics attributes this rise to the escalating prices of staple foods like garri, millet, yam tuber, and water yam.

Cardoso emphasized that while there has been notable stability in the foreign exchange market since the last MPC meeting, inflationary pressures continue to rise. He pointed out that inflation’s principal drivers now stem from structural factors like food and energy prices. He also noted that the government’s large-scale purchases for palliative distribution are adding to the pressure.

“The new dimensions of inflationary pressure are emerging,” Cardoso said. “Huge purchases by the government for distribution as palliatives to vulnerable citizens are adding another dimension to the food price inflation. Additionally, seasonal factors like religious fasting and festive periods are further driving up prices.”

Cardoso suggested that these issues require coordinated efforts by both monetary and fiscal authorities. Another MPC member, Bala Bello, echoed Cardoso’s concerns, noting that high production costs, ongoing security challenges, and exchange rate pressures are driving both food and core inflation.

In response to the rising inflation, the Federal Government recently approved N5 billion for each state and the Federal Capital Territory to procure food items for distribution as palliatives. Other government initiatives to address food insecurity include releasing grains from strategic reserves, distributing seeds and fertilizers, and supporting dry-season farming.

While these initiatives are aimed at mitigating food insecurity, Cardoso warned that they could contribute to further inflationary pressure. The CBN governor’s comments indicate that achieving price stability in Nigeria will require a comprehensive approach, addressing both monetary and structural factors.