JAIN INTERNATIONAL RESIDENTIAL SCHOOL

ECONOMICS -WS

OBJECTIVE: To make students familiar with economic terms.

Instructions: From the given article find out economic terms using your prior knowledge.
Highlight the economic terms using colours. towards the end count and write how many key
terms you have identified.

How insecurity induces high prices of food items

• May hamper interest rate cut, alter CBN’s T-bills pricing

Nigeria’s inflation rate recorded a second consecutive increase at 11.40 per cent in May 2019, following a
surge in food prices across the country. The composite food index rose by 13.79 per cent in May 2019,
compared to 13.70 per cent in April 2019, led by increase in prices of meat, oils and fats, bread and cereals,
potatoes, yam and other tubers, fish, milk, cheese and egg, and vegetables.

The development, despite seasonal factors like farming period, was worsened by the recurring insecurity in
the nation’s food belts. The north central and north east states are agrarian centres that produce most of the
staple foods consumed in the country.
Prices have continued to soar, spiking inflation rates on a monthly basis. According to the National Bureau
of Statistics, the consumer price index increased by 0.03 per cent in May 2019, higher than the rate recorded
in April 2019 (11.37 per cent).

There were increases recorded across individual consumption expenditures incurred by households, non-
profit institutions serving households and general government activities. Month-on-month basis, the food
sub-index increased by 1.41 per cent in May 2019, up by 0.27 per cent from 1.14 per cent recorded in April
2019. The average annual rate of change of the food sub-index for the 12-month period ending May 2019
over the previous 12-month average was 13.37 per cent, against 13.34 per cent in April 2019.

The Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewena, said while the inflation
rate was relatively high, its monthly increment at 0.03 per cent was negligible. He said the challenge was
about rise in inflation with flat or no growth, and that food inflation was only a symptom of the economic
shortfall, which must be fixed with strategic plans that would get the private sector actively engaged.
“Even if the inflation rises to 12.3 per cent or more, but is accompanied with high growth of five or six per
cent, it is still acceptable and nobody will feel it.
There is need for government to incentivise the private sector so that it can contribute meaningfully. There
are things that need to be done, especially in terms of power and supply constraints. We need to boost
growth. We need `investments, but government does not invest. Only the private sector does.
They only need to incentivise the private sector,” said Rewena.

A research analyst at FXTM, Lukman Otunuga, said the development stokes fears, given the current weak
oil prices, the imminent policy meeting of the Federal Reserve Bank and ongoing trade tensions. “The latest
inflation figures may fuel concerns over pressures creeping back into the economy. Should consumer prices
continue to accelerate in the coming months, this could force CBN to maintain status quo on interest rate,”
he warned.

The Head of Research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, put the company’s forecast
at 11.39 per cent, with the major driver being the increase recorded in the food index. “This is in line with
the historical trend driven by the commencement of rain and planting seasons. Also, the rising security
challenges in recent weeks in Nigeria have added to the escalating food prices.

“We believe the CBN might not increase the policy rates to curb the rising inflation rate. However, it might
raise the treasury Bill (T-bills) rates at the secondary market to mop up liquidity from the financial market
until inflation rate begins to go down,” he noted.

The Managing Director of Cowry Asset Management Limited, Johnson Chukwu, told The Guardian that
CBN had hinted on the increase in inflation at the last Monetary Policy Committee meetings, but stressed
that the inflationary pressure might be longer than projected by the apex bank. “Of course, this rising
inflation era might be sustained for the next couple of months, given that the implementation of the
minimum wage would soon start, which will have additional pressure on inflation. The budget has just
been signed into law, with no implementation yet, leaving no injection of money into the economy. So,
activities are still delayed,” he said.

According to him, what the economy needs currently are activities that would increase employment and
create wealth, not obstructions and uncertainties. All items inflation, year-on-year, was highest in Kebbi
State (15.76 per cent), Bauchi (14.97 per cent) and Kaduna (13.74 per cent). On the other hand, Abia
(9.91 per cent), Cross River (9.68 per cent) and Kwara (8.45 per cent) recorded the slowest rise in headline
inflation.

Month-on-month, in May 2019, all items inflation was highest in Bauchi (1.76 per cent), Gombe (1.69 per
cent) and Niger (1.65 per cent), while Kogi (0.59per cent) and Benue (0.48 per cent) recorded the slowest
rise. Kwara witnessed food price deflation or negative inflation. Food inflation, year-on-year, in the period
under review was highest in Kaduna (17.10 per cent), Kebbi (18.90 per cent) and Gombe (16.90 per cent),
while Kogi (11.80 per cent), Rivers (11.70 per cent) and Abia (10.90 per cent)
recorded the slowest rise.

Month-on-month, food inflation was highest in Kano (2.39 per cent), Gombe (2.33 per cent) and Kaduna
(2.27 per cent). Kogi (0.68) and Benue (0.24 per cent) recorded the slowest rise, with Kwara having food
price deflation or general decrease in the general price level of goods and services.