Understanding Peculiarity of Nigeria’s Inflation

Festus Akanbi, in this report, highlights the peculiarity of Nigeria’s inflationary trends, which analysts said are largely caused by flawed government approaches

The persistent rise in inflation and the daily increase in the prices of food and essential services are creating immense frustration for Nigerians under the Bola Tinubu administration. As living costs soar, the average Nigerian struggles to afford necessities such as food, housing, and healthcare, with prices often doubling within short periods.

Families are forced to make difficult choices, cutting back on meals or sacrificing essential needs to make ends meet.

The situation is compounded by stagnant wages, increasing unemployment, and an economy that seems unable to cushion the effects of global and local economic downturns. Many Nigerians feel trapped, with hopes for a better quality of life gradually diminishing as the gap between income and expenses widens, making daily survival a daunting challenge. The widespread frustration is palpable, as citizens face the harsh reality that the cost of living is rising faster than their ability to sustain themselves.

Although the current inflation is global in scope, economic analysts however noted that unlike in Nigeria where prices of goods and services rise at a dazing speed, the reverse is the case in well-coordinated economies where inflation happens little by little.

Reminiscing the good old days, a social-media sensation, who focuses on economic issues, Official_mcjellof recalled that Nigeria was able to maintain price stability up till the 1990s, when a tin of a particular brand of milk was sold for N10 for many years. “When I was in secondary school, the price of a pen was so constant that I thought it was enshrined in the constitution.

“But it’s a different ball game with the level of inflation that we have now, that if you price something in the morning and you go back in the evening to buy it, it has added price.

“This one is per second, per minute. This one is so bad that if you are negotiating for any commodity and the seller’s phone rings, you will not allow him to pick it up because if he picks up that call, he may tell you that the price has increased in the headquarters.”

He argued that all the factors behind the current hyperinflation in Nigeria are traced to the inefficiency of the government. These factors include exchange rates, monetary policy, subsidy removal, tax laws, and insecurity. And all of them point to government inefficiency.

Exchange Rates

Going through the nation’s journey to economic disaster, the analyst said, “Between 1999 and 2015, our exchange rates moved from N90 to a dollar to N187. You can see the gradual increase. From 2015 to now, you will know how much it has moved.

“In 2015, our president became borrower general of the federation. He moved our foreign debt from $6.5 billion to around $36 billion. One person borrowed more than all our previous presidents combined.

“And what happens is for every loan, that is not matched by productivity and investment, to affect the currency negatively. So, it is not rocket science that the more intrepid we became, the more our currency lost value.

Sometimes borrowing is not even the problem.

“The problem is, are you borrowing for running costs or you are borrowing for capital expenditure? In Nigeria, we borrow for running costs to run an extravagant government to buy jets, buy ads, build mansions, and buy things that we don't even need to impress the people who don't even care.

“Nigeria is the only country where a president will be going to meetings abroad, taking 200 delegates. They stay

in lavish hotels just to hold meetings with world leaders they are going to beg for more loans. Now, in the country we borrow money and we steal it and then we borrow new ones to use it and pursue those that stole the one that we borrowed before.

“And when your currency begins to lose value due to indebtedness and because you are an import-dependent economy, it leads to hyperinflation.”

Monetary Policy

The analyst said successive governments also got it wrong in the area of monetary policies that are not consistent with the economic realities on the ground.

According to him, “As the president was borrowing, he was not just borrowing externally, he was also borrowing internally. Whenever there was a deficit in the budget, he would go and meet CBN and turn CBN into a printing press. The CBN was printing more money for the president as overdraft and what they call ways and means.

“Ways and means simply means reckless printing of new Naira to fund the deficit in the budget. And when you recklessly print new currency without matching it with investment or productivity, it causes every other currency in that economy to lose value.

It's like having 10 pieces of bread in an economy and you have N10. It simply means one Naira will go for one bread. If tomorrow you print an additional N10, and push it into that economy without increasing the capacity to

produce more bread, the person who had N10 yesterday and has N20 today is not twice as rich. It simply means that the bread will cost twice as much.

“And to make matters worse, this current administration has floated the Naira, which means CBN can no longer  fix the exchange rates.

“The exchange rate is not determined by demand and supply. In Nigeria, we demand more dollars than we get because we import more than we export. We have more students scrambling for dollars to pay tuition fees abroad, but we don't have anybody coming in to study in Nigeria to bring us foreign exchange. So this scramble for the available dollar has made the value of the dollar skyrocket and driven down the level of our currency. And what does it cause? Hyperinflation, which brings us to the issue of subsidy.

Subsidy

“In Nigeria, paying the subsidy is not the problem but the scam around the subsidy payment. Nigeria is an oil- producing country, so subsidising petroleum products for the people to cheaper fuel is not too much to ask.

“However, for every 1,000 that the government pays as subsidy, 600 or 700 enter into individual pockets. And what it has cost is the fact that subsidies for petroleum products in Nigeria for 100 years have been squandered in 25 years. And because the current administration needs more money to fund an extravagant government, they cannot carry the burden of subsidy and they removed it.

“They removed it without checking implications, without putting measures in place for a soft landing and it has caused this hyperinflation that we are facing now. Assuming a government wants to remove the subsidy and first of all decides to invest in power. It simply means that manufacturers will not depend more on these diesel engines to run their manufacturing costs.

“But for a government to allow its national grid to fall

almost every market day, it is worrisome. They are also sending trailer loads of rice to Nigerians to cushion the  effect of subsidy, which looks like a master strategy from a master strategist.

Tax

“Now with high exchange rates, wrong monetary policies, and subsidy removal, some businesses can no longer run in Nigeria. Now they are closing down and they are leaving.

“And as they are leaving, they are taking their taxes. Now government has less tax coming in. And when a government has less tax, what are they supposed to do? Ask questions.

“But no, what this particular government did was to increase taxes, income tax, product tax, custom duty, value-added tax, electronic transfer levy, and every form of tax. And the more you tax manufacturers, the more you tax importers, they add that tax on the cost of production, which will drive the cost of the finished product, which is leading to hyperinflation.

Insecurity

With the insecurity situation, farmers cannot go to farms.

Now we are dependent on imported food. And you know the cost of importation, which is driving food inflation.

And even we have excess cash chasing the small food we managed to produce in Nigeria now.

I remember when a basket of tomatoes was between N500 to N1000. Now you know how much a basket of tomatoes costs. And this food inflation is the worst form of inflation, because you can cut off a lot of things from your budget, but you can't cut off food, because you need food to survive.

The major solution to these problems is to cut down the cost of governance. This will solve 50% of these problems. Because it means the government will be disciplined enough not to be under pressure to borrow unnecessarily.

So as a Nigerian, what you are going to do is find a way to diversify your income, cut down your expenditure, and hope for the best.