At 5-year high, it worsens Nigerians’ living standards
In the lame duck year of his presidency, President Muhammadu Buhari is finding out every day that all the indices of measuring his management of the economy are exposing him as lacking in the requisite capacity personally, and even in the ability to assemble men and women with the ability to deliver for him.
President Buhari had assured Nigerians when he first applied for the job in 2015 that he knew what the problems of Nigeria were and he had articulated them and then promised citizens and friends of Nigeria that he would approach them by tackling three issues, namely, insecurity, corruption and the economy (particularly, unemployment). But as the President runs down the clock to bring his eight-year rule to a close in May, 2023, all three issues are all belly-up.
The economy is in shambles and the indicators are flashing red in all areas. Unemployment is still at an all-time high at over 32 percent with strong suggestions that total real unemployment could be in the 53 percent region. The Nigerian naira has continued to lose value with the currency tanking further over the weekend to exchange at N625 to $1 in what many consider to be the real market, not at the banks, apex or commercial. Interest rates for bank borrowing are hovering between 20 percent to 30 percent, even more in certain circumstances.
Although inflation has crept on the world as a result of different global developments, lack of capacity to manage the economy has meant that there are some peculiarities about the way inflation in Nigeria has ambushed citizens. For instance, food-cost inflation, fuel-cost inflation are two of many mismanaged aspects of the country’s economic affairs that have created the country’s peculiarities.
Last week, inflation continued to defy all the inadequate measures thrown at it and in what is a five-year high, its fangs were all out and squeezing life out of ordinary Nigerians, who are in the majority.
The country’s quest to achieve economic recovery and ameliorate the diminishing living standards of the most vulnerable households continues to run into a brick wall as the country’s inflation rate accelerated for the seventh consecutive month to hit a five-year high.
The country’s inflation figure climbed to 18.6 percent in June, its highest level in 65 months, led by a hike in energy and food prices, after experiencing an upswing in the month of May 2022 at 17.71 percent.
The last time the inflation rate in the country recorded a higher figure was in January 2017, when it stood at 18.72 percent, the National Bureau of Statistics (NBS) disclosed in its latest consumer price index (CPI) report.
According to the current CPI report by the state-run statistical agency, there were increases reported across all classification of individual consumption by purpose (COICOP) divisions that yielded the headline index.
On a month-on-month basis, the inflation rate rose to 1.82 percent in the month under review, 0.03 percent higher than the 1.78 percent rate recorded the previous month (May 2022).
On a similar trend, the food index rose to 20.6 percent in June 2022 from 19.5 percent in May. This was attributed to increases in prices of bread and cereals, food products, such as potatoes, yams and other tubers, soft drinks, oils and fats, and wine.
The NBS also reported that on a month-on-month basis, the food sub-index increased to 2.05 percent, up 0.03 percent points from 2.01 percent recorded in May.
The highest increases were recorded in prices of gas, liquid fuel, solid fuel, garments, passenger transport by road, cleaning, repair, hire of clothing, and passenger travel by air.
On a month-on-month basis, the core sub-index increased to 1.56 percent in June 2022. This is down by 0.31 percent when compared to 1.87 percent recorded in May 2022.
Nigeria’s inflation has accelerated consistently since the beginning of the year, rising from 15.6 percent in January to the current rate of 18.6 percent. In a similar trend, the food inflation rate, which is the major driver of the escalating inflation rate, has increased to 20.6 percent in June against 17.13 percent recorded in January.
The high inflation rate is taking a toll on the welfare of Nigerians and worsening the standards of living of households, Muda Yusuf, founder/CEO, Centre for the Promotion of Private Enterprise (CPPE), said.
According to him, prices for the basket of goods consumed by most households have jumped by between 30-100 percent over the past one year, putting excruciating pressure on household budgets. Businesses are also facing the same pressure.
“Purchasing power has been massively eroded, real incomes have been depressed, and the poverty incidence has consequently worsened. The effect on SMEs is troubling,” Yusuf said.
The rise in the general price level has been attributed to several factors, including the ongoing Russia-Ukraine war, which has aggravated supply chain disruptions transmitted into the Nigerian economy via high prices of imported consumer and capital goods, and also led to higher inflation rate across many advanced economies, including the U.S, where inflation has risen to 9.1 percent, its highest level in almost 41 years. In Nigeria, disruptions in the supply of agricultural produce due to security concerns in the country’s major food producing states, such as Benue, have contributed to rising price levels.
Lonji Dafur, senior analyst at Financial Derivatives Company Limited (FDC), noted that the rising cost of diesel has exacerbated transportation and logistics costs, trickling down into the domestic commodities market.
According to Dafur, the Central Bank of Nigeria’s move to raise the Monetary Policy Rate (MPR) to 13 percent from 11.5 percent to curb inflation is yet to yield the desired impact.
The most surefire way the government can curtail the rising inflation, he suggested, would be for the CBN to try and boost domestic forex foreign exchange supply, which would help to provide foreign exchange for manufacturers and importers and, as a result, strengthen the value of the naira and reduce supply disruptions while also easing some of the inflationary pressures seen domestically.
He, however, noted that the external reserves are down about 2 to 3 percent from the beginning of the year, making it more challenging for the apex bank to supply forex to the market recently, weighing on the ability to defend the naira.
The World Bank had projected that Nigeria may have one of the highest inflation rates globally and the seventh highest in sub-Saharan Africa in 2022, with increasing prices diminishing the welfare of Nigerian households, unless measures were put in place to contain inflation.
“If double-digit inflation persists during 2022-2023, rising prices will distort consumption, investment, and saving decisions of the government, households, and firms, with adverse ramifications for long-term borrowing and lending,” the global bank said in its November edition of the Nigeria Development Update (NDU).
“Over time, the disproportionate impact of inflation on lower-income households and those working in sectors with low savings such as agriculture, will exacerbate inequality. Ultimately, inflation will not only negatively affect incomes, but also economic productivity and job creation, further constraining the recovery,” it said.
Prior to this time, the World Bank had ranked Nigeria 8th in its list of top 10 countries with the worst inflation rate, joining the likes of inflation-ridden Sudan (382.82 percent), Lebanon (154.76 percent), Zimbabwe (98.55 percent), Suriname (59.11 percent), Ethiopia (26.83 percent), Zambia (22.02 percent), Turkey (19.59 percent), Haiti (16.84 percent), and Guinea (12.59 percent).