Inflation rate rose to 12.1 percent in June, the National Bureau of Statistics said in a statement on its Website. The rate was 9.7 percent in May.

According to NBS, the recent rise in the rate was caused mainly by increase in the price of some food items, household goods, diesel and some building materials.

Inflation rate stood at 8.8 per cent at the beginning of the year, but decelerated to 8.1 per cent in February. . It was 6.6 per cent last December. It maintained the downward trend in March, declining to 7.8 per cent.

But in April it began an upward movement, with the rate rising to 8.2 per cent. In May it nudged up further to 9.7 per cent before the June rate.

The last time inflation rate attained a double-digit level was in May 2006, when it stood at 10.8 per cent. It came as low as 3 per cent in July 2006. By July 2007, the rate stood at 6.4 per cent.

Central Bank of Nigeria raised the benchmark interest rate by a quarter of a percentage point in May, citing resurgence in inflation.

The Minister of Finance, Dr. Shamsudeen Usman, said mid-May that the central bank would take "whatever action" necessary to keep inflation below 10 per cent.

Soludo, while explaining the policy measure, said that "threats of resurgence of inflation are very high," citing growth in credit to the private sector and fiscal expansion, as well as increasing food and oil prices.

"If we do nothing, inflation will return to its old level and everybody will be worse off," he said.

By raising its rates, the apex bank, which is taking a preemptive move to cage inflation, is encouraging people to save by adding additional interest to their savings. At the same time it is discouraging people from spending because of the perceived or anticipated excess funds in the economy.

The CBN Governor also raised the Cash Reserve Ratio (CRR) by 100 basis point from 3 per cent to 4 per cent. The CRR is the proportion of banks total deposits held in cash balance with the CBN.

He also put the figure of the nation’s external reserves, at $59.16 billion as at May 28, 2008. This, he said, could finance 27 months of current foreign exchange disbursements.

Soludo said the committee had observed that the monetary policy had to be proactive and as such had to ensure that negative factors affecting price stability and real activity were taken care of. "The policy has to ensure that concerns about price stability and real activity levels are recognised and actions taken to address them. In view of the sharp growth of credit to private sector by 96 per cent and M2 by 62 per cent on a year-on-year basis by March 2008, and as final expansion is all time high, threats of resurgence of inflation are very high.

Source: The Nation