In spite of the various policies being introduced by the Central Bank of Nigeria (CBN) to stem the tide of rising inflation,recently-released data from the National Bureau of Statistics (NBS), indicated that the rate of inflation in the country is steadily increasing. Nigeria's rate of inflation which was 10.3 percent in September 2011, hit 10.5 percent by October 2011. The fall-outs from the insecurity caused by deadly bombings and violence and the attendant social tensions, have been blamed, in part, for this negative impact on the economy. General uneasiness especially in Northern Nigeria has contributed to the rising costs of food as tension building over insecurity, restricts movement. Hence, the general uncertainty not only accentuates food prices, but also affects the quantity of foodstuff that could be transported across the country.All over the world, rising inflation is an enemy of economies, because it induces currencies to lose their purchasing power. With growing inflation, prices of goods and services also rise, forcing up the cost of living. The growing costs affect mostly the poor and middle class because their incomes could not sustain them adequately. It is not unusual for the increase in prices to lead to protests, riots and general social instability.Such frequent and unstable price increases discourage long-term planning, reduce savings and capital accumulation. They also undermine the function of money as a store of value and discourage investment and growth of the economy. This is the scenario that is currently playing out in Nigeria's economy. It is to prevent deeper devastating effects of inflation in the country, that CBN has been putting many monetary policies in place to keep inflation in the economy within single digit rate. But, like it is for most economies, inflation is the most difficult element to control. Going forward, both the Federal Ministry of Finance and CBN must collaborate further to combat rising inflation rate in the country. In particular, they must formulate a mix of monetary and fiscal policies that could significantly reduce inflation in the economy and also ensure more accretion into the country's foreign exchange reserves. CBN must put in place further measures that would temper the rising inflation in the economy, ensure price stability and sustained economic growth in the country. It would need to be more creative in finding solutions and make its Monetary Policy Rate (MPR) more effective as a modulator of savings and lending rates. So far, unlike in advanced economies, MPR has little or no impact on both savings and lending rates in the country. For example, while savings and deposits attract between two and three percent, lending rates are now about 20 percent and above. Such a huge disproportionate gap between savings and lending rates is clear evidence that CBN's MPR has little or no control in the efficient management of the economy. Increase in MPR brings about inflation because once the apex bank raises its MPR, it also raises the cost of advances to banks. And with CBN advances to banks moved from 9.5 percent to 12 percent, banks would generally be cautious as they would want to avoid exposure that could push them to give exorbitant rates of interest and thus restrict their capacity to lend to customers. Hence, tight money market and higher costs usually translate to high costs of goods and services produced in the country and fuels inflation. Also higher MPR has a tendency to increase national debt burden because it increases the rate payable on government treasury bills and bonds. In conclusion, the country needs to introduce more robust monetary and fiscal policies that would bring down inflation to single digit and also curb rising costs in the economy. Policy makers should bear in mind the knock-on socio-political effects of rising costs on the lives of the populace.
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