As inflation continues on an upward trend, the resultant effect on Nigerians is becoming more worrisome, especially the impact it will have on the purchasing power of Nigerians.
The latest data from the National Bureau of Statistics shows that the inflation rate for May stands at 17.71 per cent, which is the highest figure in 11 months.
According to the NBS, the average price of 1kg of white beans rose on a year-on-year basis by 37.22 per cent from N382.37 in May 2021 to N524.70 in May 2022.
“Also, on a month-on-month basis, this increased by 1.09 per cent from N519.05 in April to N524.70 in May, it stated.
The report showed that the average price of 1kg of a yam tuber increased on a year-on-year basis by 37.87 per cent from N269.98 in May 2021 to N372.23 in May 2022.
NBS stated that on a month-on-month basis, the average price of yam increased by 3.05 per cent in May 2022, compared to what was obtained in April.
Similarly, the average price of 2kg pre-packed wheat flour rose by 34.92 per cent on a year-on-year basis from the value recorded in May 2021 at N785.87 to N1,060.26 in May 2022.
“On a month-on-month basis, it increased from N1,047.74 in April to N1,060.26 in May 2022 indicating a 1.20 per cent rise,’’ it stated.
The report showed that the average price of a bottle of palm oil increased by 42.81 per cent from N593.36 in May 2021 to N847.39 in May 2022.
The report showed that the average price of 1kg of boneless beef rose by 34.11 per cent on a year-on-year basis from N1,513.43 in May 2021 to N 2,029.59 in May 2022.
It added that the average price of one bottle of groundnut oil stood at N1,040.88 in May 2022, showing an increase of 47.99 per cent compared to N703.36 in May 2021.
“On a month-on-month basis, it rose by 3.29 per cent from N 1,007.68 in April 2022,” the NBS stated.
Daily Trust on Sunday reports that many households are already feeling the heat, especially with consumer goods such as groceries, beverages, food items and provisions haven doubled in prices since last year.
Asides household, many Micro, Small and Medium Enterprises operating in the country have also recorded hike in their operating cost while others have to shut down as they lack the financial stamina to continue.
Possible reasons for inflation and why Nigerians should worry
Checks by Daily Trust on Sunday has shown part of up reasons for the inflation can be the ongoing Russia-Ukraine war.
The war, which is in its fourth month now, spiked supply chain disruptions which had existed at the onset of Covid-19.
Multi-year highs were recorded in the inflation rate across many advanced economies.
The inflation is now affecting the Nigerian economy through high prices of imported consumer and capital goods.
In the same vein, the persistent insecurity situation in the country has made matters worse especially in the north western part of the country as farmers are denied access to their farms while others are killed in the process. This in turn has contributed to rising price levels.
Another reason could be the rising transportation cost as well as currency depreciation.
For instance, during the just concluded primary elections of the All Progressives Congress and the Peoples Democratic Party, delegates were alleged to have been bribed with dollars.
The week preceding the election witnessed huge mop up of foreign currency which further weekend the naira to trade about N610 to $1 in the parallel market.
High Cost of Transportation
Just recently, diesel marketers warned that the price of diesel could rise to N1,500/litre citing the increasing global oil price, the effect of the Russian Ukraine war and a general supply gridlock across the world. Diesel prices immediately rose to N800/litre from about N650/litre in May. Diesel prices, which used to be N350/litre has more than doubled in prices in the last few weeks.
The resultant effect on prices of goods and services is now evident as trucks that consume food items and other goods are now charging double for delivery, while wholesalers and retailers transfer the burden to consumers.
In Nigeria, small and medium businesses depend on power to carry out their operations, however the unavailability of power and the over reliance on generating sets have mounted more pressure on inflation.
The national grid has collapsed many times in 2022, leading to consistent darkness as distribution companies cry over insufficient energy allotted to them to distribute.
Also, there are indications that electricity prices are also likely to be increased as another tariff review approaches in the next few months. Tariffs have more than doubled in the last two years for Nigerians even as power supply remains epileptic.
The inflation figures currently seen in the country is a red flag indicating that all is not well with the exchange rate crossed N600/$1 which was the first time in Nigeria’s history that the exchange rate had crossed N600/$1 widening the disparity with the official rate to about N180/$1.
This has also had a devastating effect on Nigerian Stocks which are currently down 5.3 percent month to date and on track to close the month in losses.
Also, over N2 trillion has been pumped into treasury bills despite the negative real return of the interest rates suggesting that investors are flying to the safety of government-backed securities.
The implementation however is not only in Nigeria alone as events across the global economy are also pointing to a possible global economic contraction.
Some analysts are already predicting a global recession that could trigger a major financial crisis, especially in Western economies. Already, the impact of rising inflation in the west has led to record increases in interest rates in the US, EU and UK forcing a market sell-off that has rocked cryptocurrencies and equities.
This implies that it will force companies to increase their prices, even further stifling demand for goods and services as the purchasing power of Nigerians gets decimated. The exchange rate could fall to N700/$1 much sooner than we expect and yet remain scarce to find. As companies struggle amidst waning demand, they could be forced to cut their losses by downsizing, triggering mass unemployment.
What Monetary Authorities Can Do
Financial analysts are already projecting that with the high rate of inflation, Nigeria could be headed for hard economic crisis riddled by the high cost of goods and services and a contracting economic growth rate if it does not take urgent steps to address the situation.
A financial expert, Musa Jauro said “Large Eurobond offering might help soften the challenges even though this will also come at a cost especially if we do not find the revenues to pay for it in future.”
He added that “Nigeria can also run cap in hand to the IMF and World Bank to raise forex, especially via fresh multilateral loans. This will come at a significant cost and conditions, one of which might be to fully deregulate the downstream sector (removing subsidy) and allowing the naira to float. As we have seen with Ghana, this option is great for markets but not a silver bullet. It comes with considerable pain except that it is one that leads to a cure of the disease.”