Two separate forecasts last Friday pointed to an expected deceleration in the pace of inflation in Nigeria after seven straight months of increase but a full reversal in the rampaging price growth may come at a time too late for millions of small businesses.
Hammered by a surge in energy and transportation costs as well as constant harassment by government agencies, small businesses across Nigeria are cutting staff costs or closing shop in a relentless manner.
Many owners of small businesses surveyed in the last two weeks by BusinessDay said they have had to lay off staff and in some cases, they have stopped taking a salary from their businesses, which are gasping for breath.
“2022 has been a year of hardship and pain on top of two other years lost to COVID-19,” said Gertrude Nkoli, who runs a 10-year-old small business in Lagos. “Owners of small businesses are confounded by the ever-rising prices of input and diesel, which we cannot do without because of the frequent collapse in public power supply.”
Many managers of small businesses who spoke to BusinessDay highlighted the frustration of watching helplessly as their inventory build-ups along with their debt obligations.
With the outsized jump in the monetary policy rate, which the Central Bank of Nigeria announced last week, the nation’s small businesses, which are already contending with decreasing footfall and the collapse in average spend by customers, are also facing a drastic increase in the cost of servicing their bank loans.
In the last week, local banks have been contacting their customers to break the bad news that their interest payment will rise, in some cases to 25 percent annually, meaning if a business is owing N100 million, the interest charge in one year alone will now be N25 million.
A note by economists at FBNQuest Friday suggested that with food inflation appearing to be easing, Nigeria’s inflation surge might be nearing a temporary respite. Food constitutes about 50.7 percent of the composite consumer price index basket used for measuring the rate of price growth in the country.
It said: “The latest inflation report by the National Bureau of Statistics (NBS) shows that inflation increased for the seventh consecutive month to 20.5 percent in August from 19.6 percent the previous month. This was driven by sustained price increases in the food and core components, which advanced by 110bps and 94bps to 23.1 percent and 17.2 percent receptively.
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“Food price inflation is a major driver of the elevated headline reading. It has risen roughly by an average of 100bps over the past seven months.
“The latest data indicate a deceleration of momentum to 110bps from 141bps in July. However, we anticipate that food inflation will slow down further in September as food supply increases due to the ongoing post-harvest season.”
The FBNQuest analysts say while they expect inflation to continue to climb, “we anticipate a slowdown in its momentum following our expectation that food price inflation will start to decelerate because of increased food supply from harvests. We also expect pressure on core inflation to begin to ease due to the recent sell-off in crude oil prices.”
In another forecast issued Friday, Fitch suggested that emerging markets including Nigeria should begin to see inflation attaining a peak.
“While there is no doubt that inflation is an ongoing concern in many markets, Fitch Solutions core view is that price pressure will peak in most emerging markets and ease over the remainder of 2022, ” said Joo-Yung Lee, Managing Director and global head of Financial institutions at Fitch.
At its meeting early last week, the MPC voted to raise the policy rate by 150bps to 15.5 percent, as the central bank battles to close the widening gap between the policy rate and headline inflation. Many economists surveyed before the action had said they expected a rate rise in the region of 50bps.
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