BusinessDay

EXPLAINER: Why Nigeria’s inflation rate grew in the last 9 Decembers

One of the most consistent features associated with Nigeria’s inflation rate in the last decade (10 years) is its clingy but oscillatory nature around the double-digit territory. However, one feature which has eluded the attention of many Nigerians is its consistent uptick during the yuletide (Christmas) periods.

Nigeria in the last decade witnessed an increase in inflation rates during the month of December, even when the rates are declining all through the year.

Nigeria’s 8-month consecutive inflation slow-down in 2021, finally came to a halt in December as yuletide pressures pushed inflation up 0.2 percentage points from 15.40 percent recorded in November to 15.63 percent in December of 2021. This was according to the recent inflation report released by the National Bureau of Statistics (NBS) on Monday. The rise in inflation is said to be largely dependent on the surge in ‘buying pressures’ during the December festivities.

Food inflation rose from 17.20 percent in November to 17.37 percent in December; but on a month-on-month basis, there was an increase of 2.19 percent. Core inflation maintained an upward trend as it increased from 13.85 percent in November to 13.87 percent in December which was largely a reflection of the impact of currency depreciation and liquidity challenges in the FOREX market.

Speculations and analysis concerning this uptick has been conversation on the lips of many Nigerians as it has continually eroded the purchasing power of many households and questions surrounding these dynamics have been persistently asked.

In line with providing answers to these pertinent questions, BusinessDay explains the major demand-pull/cost-push factors that contribute to this persistent uptick in inflation during Christmas festivities.

Increased Demand for Food Items
Christmas seasons are usually associated with the spirit of sharing. One major commodity which dominates the highest percentage amongst the ‘sharing’ portfolio is usually Food items. This tradition has transitioned over the years and has gradually started becoming a lifestyle. Hence, food items/food vendors usually capitalize on these traditions (Christmas sharing) in order to make reasonable profit before the year runs out.

However, 2020/2021 being a peculiar year was accompanied by perennial insecurity in the food baskets of the country and that subsequently drove inflation rates above the roof during the course of the year. Even though a better part of the year witnessed decline in inflation rates, December however, was an exception. The reason for this increase could be accrued to the buying/demand pressures that accompany the festivities of the Christmas/Yuletide season.

Emeka Ucheaga, a financial analyst at Credit Direct Limited stated that the demand pressures that accompany the Christmas seasons are almost inevitable as it conforms with the doctrines of Christianity and as such rise in prices are imminent.

“It’s simple economics,” he said. “Scarcity drives value and value subsequently drives demand. Thus, once demand increases, naturally, prices would go up.
“Food prices on the other hand is an inevitable expense, hence its prices would definitely rise once the demand becomes high,” Ucheaga added.

Read also: Inflation surge unlikely to raise interest rate

Increase in Transportation costs

The month of December is usually considered the month when families unite. Families around the country and the globe at large usually make plans around the month of December to unite as it represents the one time in the year when they are free from the hustles and bustles of work. Transport agencies thus use this opportunity to earn some extra profit. The demand pressure associated with this period pushes prices of transportation higher than any other month of the year.

A transport agency official, who opted to remain anonymous for personal reasons stated that the pressures associated with the season usually motivates them to increase prices in order to dampen the pressures incurred by them during the festive seasons.

“The demand pressures that come with this season are always scary. Most times we usually receive threats from some customers, so we try to increase prices above normal rates to dissuade customers.

“Despite these increases, the number of customers we still get are usually alarming,” he said. “It is not always about the profit most of the time, it’s just a sort of control mechanism.”

Data from NBS revealed that Urban sector transport CPI increased from 391.2 in November to 396.4 in December. It could also be recalled last year that, as a result of insecurity on the roads and rails, air transportation increased by almost 60% during the festive periods. These factors are among some of the major factors that contributed to the rise in transport costs during the various Christmas festivities in the last couple of years.

Communication costs

Similar to transport costs, communication costs are almost inevitable during the festive periods. Communication during the festive periods are usually at all-time highs as families around the world need to communicate with each other as well as share pleasantries during these periods. Even though these increases are not as significant as those obtained in the transport sector, it still serves as a significant contributor to rise in inflation rates during various festive periods with December being the most dominant.

Miscellaneous goods and services cost
This comprises personal grooming establishments like hairdressing salons, barbershops, sauna and massage shops, jewelry shops, gadget shops etc. If there is any better time to compensate your kid with a PS5 for a job well done during the year’s academic session or your daughter with an iPhone 13 or your spouse with a massage, December is the month for it.

However, demand pressures always plummet the costs of such goods or services. Over the years, exchange rate differentials/devaluation have also been accrued to increase in prices of these goods and services. However, last ast year was one of a kind because global supply chain disruptions actually increased scarcity of a lot of these products and subsequently led to increase in prices of some of these commodities. These commodities were the major drivers of the increase identified in core inflation (which comprises all other items less food/farm produce).

Data from NBS revealed an increase in Urban miscellaneous goods and services from 338.8 in November to 343.2 in December.

Hotels and Restaurant costs

This category of costs explain themselves. December is a month allocated by most for vacation. Most people in Nigeria usually set their marriages during the month of December. As a result of this most hotels and by extension restaurants are usually fully booked and as a result of these pressures coupled with the festive pressures, prices of booking are more often than not doubled during this season.

Data from NBS revealed an uptick in Urban Restaurant and Hotel cost from 292.6 in November to 296.1 in December.

Rural cost within the same weight class revealed an uptick from 265.7 in November to 268.7 in December.

Eno, a Manager at Grand Pela hotel Abuja stated that most weddings and events usually clash during that time of year and as a result, prices have to be doubled as their workers usually do double-shifts in order to meet up with customers’ pressurizing demands.

“We are in the business of offering our customers’ premium services without failure. However, we are sometimes swamped with orders and as such we have to improvise in order to maintain good relationships.

“We cannot employ new staff for just one month (December) on the back of these pressures, so what we do is pay our workers’ overtime and in order to make such payments a reality the cost usually is transferred to the customers,” she said.
“The funny thing is that they are always willing to pay regardless. It’s sometimes quite scary for the workers, but we always prevail,” she added.

A restaurant manager, whose identity remains anonymous for personal reasons, stated that the increase in prices of prepared food this December was partly as a result of the price of cooking gas during the period.

“I cannot buy gas for almost N9,000 plus and come and sell my food at the former regular price. Even if I was not going to add because of the increase in price of food items, but for the price of gas, I definitely will,” she said.

“This gas own chook me baje,” she added.

The statistician-General of the Federation, Simon Harry while explaining to journalists indicated that the rise in inflation rate for the month of December does not really come as a surprise as buying pressures associated with the season is an inevitable reality.

“We know what January school fees feels like because we are all culprits with regards to the popular ‘December spending frenzy,” he said.

“The reason why inflation figures always rise in December can simply be accrued to the buying pressures associated with the Christmas festivities,” Harry said.

The continuous rise in December inflation rates is not a trend that is going to be predictable with any level of certainty or would be controlled adequately by any government policy in the near future. However, if anything is certain, it’s that this trend of ‘December-rising-inflation’ is a trend that isn’t going to end anytime soon.

Get real time updates directly on you device, subscribe now.