According to World Bank analysis, Nigeria’s inflation rate for the year 2022 is projected to be among the highest in the world and the seventh in Sub-Saharan Africa. The World Bank stated that the inflation rates in Nigeria have diminished the welfare of Nigerian households.
The World Bank also pointed out that a high inflation hinders the country from successfully recovering its economy, and it also seriously negates the purchasing power of vulnerable households in the country.
“High inflation is frustrating Nigeria’s economic recovery and eroding the purchasing power of the most vulnerable households. In the absence of measures to contain inflation, rising prices will continue to diminish the welfare of Nigerian households.” The World Bank said.
The World Bank enumerated some of the disadvantageous effects of inflation on the country, stating that Nigeria ran the risk of pushing about eight million citizens into poverty, disrupting consumption and investments, among other things.
The Central Bank of Nigeria had set a goal of 9% for 2021, the World Bank stated that if the inflation had been within that range the country’s consumption would have been 15 percent higher, and about eight million Nigerians would not have fallen into poverty.
“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 bank said.
The World Bank cautioned that the impact of inflation on the households with lower income and on those who work in sectors with low savings like agriculture will result in the increase of social inequality in the country.
It stated that inflation would negatively affect economic productivity, job creation and income, which would further prevent economic recovery.
The bank reported that for over two years, an increase in the prices of food accounted for approximately 70 per cent of the increase annually in the inflation rate.
The bank noted that some of the inflation is due COVID-19, which caused the disruption of supply chains due to the measures taking to contain it, and while the threat may have subsided the border closures and limited access to the market have given rise to the inflation.
“The current mix of monetary, fiscal, foreign exchange, and trade policies also play a prominent role as a driver of inflation. Trade and FX restrictions, including the closing of land boarders starting in August 2019, have increased prices for food and consumer goods, and imports of over 40 goods, including many staple foods, are currently ineligible for FX through formal windows.” The bank said.
The World Bank stated that Nigeria’s exchange-rate management has resulted in the rise of parallel rates, which affect the dynamics of food-price. The inability of businesses to access FX through the official exchange-rate window causes them to seek FX on the parallel market, as well as other alternative sources.
“The parallel rate influences their business decisions, and fluctuations in the parallel rate pass through to the market prices for goods and services. Moreover, monetary policy has not prioritized controlling inflation, and the monetary financing of fiscal deficit undermines the effectiveness of policies to contain demand-side inflationary pressures.” The World Bank said.