Inflation numbers for january 2011 are out with iinflation rising for the first time in a while to 12.1%. This somewhat justifies the central banks benchmark interest rate hike last month. All eyes are on the FG’s rising spending as the guilty party here but some world prices have gone up as well. It is also telling of the rather perilous situation the central bank finds itself. Interest rates are still too high, there are significant pressures on the exchange rate and inflation is making a comeback. They can’t tackle all these at the same time. It is just not possible. The economy is not growing fast enough to keep up with rising government spending, and domestic production and exports ( yes including crude oil) is not keeping up with the demand for foreign goods. The economy seems to be heading for a breaking point unless something changes. Some politician claimed that recently….. can’t remember who……oh yeah the guy whose message was shot down because the messenger was um…….
So what needs to happen to get us back on track? Domestic needs to start growing and start growing soon and the FG needs to cut it’s spending and refocus on key infrastructural challenges. Spend more on the electrical grid, roads and ports and spend less on campaigns, salaries and million naira dustbins from the UK. And those reforms…. where are they?
All those remedies are out of the central banks hands. They have only three options, raise interest rates again, allow the naira to devalue a bit or let inflation go through the roof. None of these are really good options but letting inflation continue to rise is probably the worst.. It’s a tough job being a central banker right now.