Nigeria’s headline inflation rose to 15.75 percent in December, its highest level in 32 months, the National Bureau of Statistics (NBS) said recently. Inflation also touched 14.89 percent in November, with a 0.86 percent month-by-month increase in December. The figure marks the 16th consecutive month inflation would increase in Nigeria.
The inflation rate has continued to generate debate among stakeholders. One of the major concerns is that, inflation has a way of reducing a country’s international competitiveness by making its exports relatively more expensive, thus, impacting negatively on the balance of payment.
Nigeria’s economic situation is fast degenerating into the doomsday situation of the ’80s when oil prices collapsed, culminating in currency crisis, inflation spiraling out of control, then recession.
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Analysts do not see the inflation rate that is going so high in the country as a surprise. For them, the issue is, this time last year, the Central Bank of Nigeria (CBN) made obvious efforts at pushing inflation to a single digit. But it seems any time the Central Bank wants to get inflation to a single digit, something happens that erases all the gains.
These figures are not surprising, as the key driver of this is food inflation closing on 20%. This should not be surprising to observers because the country’s borders were closed for a greater part of last year.
Also, the bread basket of Nigeria is where security problems had prevailed in most parts of 2020. Because of these two key factors, the country was not able to grow enough food last year. We also had Covid-19 and the accompanying lockdown as well as increased cost of transportation and logistics cost. So, with the effects of these factors beginning to manifest, Nigerians are seeing food inflation lately at 20%.
Another exacerbating factor of the current inflation is that the huge gap that was existing between the rural and urban inflation rate is fast disappearing. Before now, those who lived in the city paid more for consumables than their counterparts in the rural areas. But now, urban food inflation rate is at 16.33% while rural inflation follows closely at 15.20%. Inflation is almost becoming a ticking time bomb in Nigeria’s rural areas.
This closing gap is because the costs for services that those living in the rural areas need, things like fuel among others have gone remarkably up. So, the comparative advantage that the rural dwellers have in terms of basic food production has been reduced tremendously.
Besides growing cost, security challenges would not allow farmers produce food as usual. These factors put together hampered production capacity extensively in 2020, effectively manifesting in the close gap of food inflation rate between the urban and rural areas.
Urban inflation, on the other hand, is mainly driven by government policy. They include the increase in the pump prices of petroleum products and electricity tariffs, introduction of stamp duties among other taxes. Traditionally, however, urban inflation has always been higher because there are lots of imported goods and currency exchange flexibility within urban settlements.
Food security is very important and should be a cause for concern to all citizens. It’s also important, Nigerians know what sort of inflation that is prevalent in the country. It is cost-push inflation, not demand-push inflation. It can equally be tied to a particular factor which is food inflation.
This is where the handlers of the nation’s economy really need to channel their focus. We need policies and actions that reduce the prices of food if we must check inflation in Nigeria. The country is not producing food the way it used to do some years ago. So, there is an increasing threat to food security coming at us frontally.
Clearly, growing inflation is at the doorstep of the CBN and efforts should be made to manage it through diverse monetary policies. The classic definition of inflation, which is too much money chasing few goods, does not apply to Nigeria’s case today.
Nigeria has more than one hundred million people living below poverty line who do not have the purchasing power to chase available products. In the midst of this inflation, we still have loaded warehouses waiting in high expectation of empowered citizens to make purchases. Obviously, Nigerian inflation is primarily driven my high prices of food, and it’s important that, the handlers of this economy target that and address it.
It is also important that policy makers ensure they come up with policy that will attract enough foreign investment inflows into the infrastructure sector to compensate for the foreign income lost to the fall in oil price.
Looking at Nigerian economy today, the indices pointing towards the real sector are negative because the inflation rate exceeds the interest rate, and there is devaluation of assets. This is why many investors are looking towards the capital market that is still booming presently.Looking back, the fundamentals that can sustain the honeymoon between the stock market and investors are not entrenched. Although the stock market may be the bride of many investors presently, if the current inflation persists, a crash could be imminent.
This is why visionary and long-term investors would be moving more funds into the real sector of the economy, where real investment can help stimulate growth and bring some gains later
However, the way this whole situation can be managed comprehensively to Nigeria’s advantage is if the Central Bank of Nigeria can use monetary and other policies to drag inflation back to 11% which they were able to achieve a year ago.
Godwin Ayebe
