Economy

Manufacturers express worry over rising inflation

Published

1 year ago

July 22, 2022

Manufacturers have expressed worry over the rising inflation, triggered by the socio-political and economic activities, fuel scarcity, insecurity and food shortages in the country.

The Manufacturers Association of Nigeria, in a statement on Friday, identified other drivers of inflation as seasonality and shortfall in the supply of raw materials for the production of food-related products, fertilizers and others not available locally.

According to MAN, high inflation is a major indication of macroeconomic inadequacies, adding that failure to take steps to address the contributory factors will further limit economic growth and increase the rate of unemployment in the country.

The National Bureau of Statistics (NBS) reported that headline inflation for June 2022 stood at 18.6 per cent, indicating a further rise of 0.85 per cent point from 17.75 recorded in the corresponding period of 2021.

On a month-to-month basis, the report also revealed that the headline inflation rate increased to 1.82 percent in June 2022, signifying 0.04 percentage point increase above the 1.78 per cent recorded in May 2022.

Food inflation also increased to 2.05 per cent, when compared to 2.01 per cent recorded in May 2022, while core inflation declined from 1.87 in May 2022 to 1.56 in June 2022.

It stated, “The fuel scarcity necessitated further hike in energy prices, particularly prices of diesel, aviation fuel and petrol, which all had trickled down effects on the cost of food, manufactured products, other commodities, transportation and accommodation nationwide. Most notably, the price of diesel has spiked by about 230 per cent in the last one year.

“However, the CBN expansionary policy stance, which influenced the growth in broad money supply by 25.51 percent in the last twelve months fueled inflation.”

Implications for consumers and the manufacturing sector

The implications of the high inflation rate for the Manufacturing Sector include:

Rising increase in cost of production inputs with trickle down effects on capacity utilization, inventory and profitability of manufacturing firms;
Higher MPR and Lending Interest Rate, which will further constrained access to credit and increase the cost of borrowing for manufacturers, especially those in the SMI cadre and upward swing in the value of shares for manufacturing concerns listed on the stock exchange. It will also have differing implications like reduction in demand for manufactured products leading to poor sales and turnover;
Lower competitiveness as the high inflation rate further mount pressures on the already very high-cost operating environment, which may hinder the prospect of beneficial trade in the region and the continent.
Further loss in the value of the Naira; increase the tempo of hoarding dollars; deepening of downward swing of export earnings, which of course will worsen the forex challenge in the country and closure of more companies as the capacity to meet obligations to internal and external stakeholders is greatly impaired.