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‘Spending can push up inflation’

‘Spending can push up inflation’

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The expected rise in campaigns toward the forthcoming next month’s general elections will lead to huge increase in expenditure. Also, the injection of excess liquidity into the system without a corresponding increase in national productivity may push up nflation.

These were the submissions of Cowry Asset Limited Managing Director Mr. Johnson Chukwu, who argued that with the government’s expenditures expected to increase during the electioneering, operators in diverse sectors should expect inflation to go up.

“When elections come, parties and contestants spend a lot of money; such money certainly have to be spent on goods and services. And when you have an increase in demand for goods and services and that increase is not matched by increase in supply of goods and services, the effect will be that prices will go,” he said.

Chukwu told The Nation in Lagos that inflation-induced election-related expenses had started manifesting, with inflation increasing from 11.36 per cent to 11.3 per cent last November.

Apart from increase in election expenses causing inflation to rise, he said there was also the possibility of the naira coming under serious pressure should the oil price drop. He said when this happened, the exchange rate would worsen and the effect will be visible in the general price level.

“If the naira/dollar exchange rate increases, it will affect the price of crude, which invariably, could lead to inflation,” he warned, adding that the new minimum wage, when implemented, will also have effect on the price level.

The expert said the cutting down of the proposed 2019 budget to N8.83 trillion was commendable, pointing out, however, that the budget assumptions appear ambitious, with the crude price of $60 per barrel, for instance.

“Interestingly, we have seen a slump in oil price. Should that slump in oil price continue, the budget might be unattainable,” Chukwu stated, advising that the government should thinker with the crude benchmark when considering the budget.

He also said the 2.3 million barrels projected crude production may be challenging, as the country has not achieved that in recent time.

“I think the 2.3 million barrels are too ambitious; every other thing in the budget is dependent on government projected revenue,” he added.

Chukwu pointed out that it was difficult to achieve the revenue projection.

“I think that will be a challenge for the government; if you can’t achieve the revenue projection, it becomes difficult to meet the expenditure projection.

“I think the government and the National Assembly should look at how realistic the revenue projections are given the current oil price environment,” he further advised.

The Cowry Asset boss, however, observed that last year witnessed some gradual improvements in the business environment, resulting in the gradual expansion of the productive sector.

He also observed that there was constrained improvement in the Gross Domestic Product (GDP) figure in the third quarter of last year.

“There was an improvement in the third quarter 2018. The year started with 1.9 per cent first quarter growth, and declined to 1.5 per cent in the second quarter. It grew back to 1.8 per cent in the third quarter,” Chukwu said.

He, however, maintained that the economy was on a slow growth path. He observed, for instance, that the trade sector did well, though it was in recession for so long. There was also an improvement in the manufacturing sector.

“On the average, the economy is on the recovery path, but on a very slow recovery rate,” he stated.

The expert observed that the economy was not growing at the rate the population was growing. “We saw an increase in unemployment from 17.9 per cent to 20.3 million people, which translated to increase of unemployment rate from 23 per cent to 23.1 per cent.

 

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