Nigeria, Africa’s most populous nation, has witnessed a slight decline in inflation after nearly two years of persistently high double-digit monthly rates, offering some relief to consumers but leaving policymakers with significant challenges.
While this marginal decrease might temper expectations for aggressive monetary tightening by the Central Bank of Nigeria (CBN), ongoing inflationary pressures on essential goods like food and fuel indicate that the battle against rising prices is far from over.
“It is exacerbating social inequalities, disproportionately affecting the poorest Nigerians, and widening the gap between the rich and the poor.”
Economists and analysts are revising their outlooks, with many anticipating a more cautious approach from the CBN in the coming months. However, the impact of inflation is not evenly distributed across the country.
It is exacerbating social inequalities, disproportionately affecting the poorest Nigerians, and widening the gap between the rich and the poor.
For millions of Nigerians, particularly those in lower socioeconomic strata, inflation is a harsh reality rather than a mere economic statistic. While wealthier individuals may find ways to shield themselves from the worst effects, for many living on the margins, inflation is a constant threat that aggravates existing vulnerabilities and drives more families into poverty.
Read also: Why food prices remain high despite fall in inflation
According to the National Bureau of Statistics (NBS), inflation reached 33.40 percent in July 2024, a slight decrease from the previous month’s 34.19 percent. Although this reduction might appear encouraging, the situation on the ground remains grim for the average Nigerian.
For low-income families, rising prices for basic necessities such as food, housing, and transportation are increasingly burdensome. The NBS estimated that the poverty rate reached 38.9 percent in 2023, with approximately 87 million Nigerians living below the poverty line, surviving on less than $2 a day.
Even a small increase in the cost of staple foods like rice, beans, and bread can be devastating for these households. While food inflation has decreased from 40.87 percent to 39.53 percent, this drop has yet to be reflected in actual prices, continuing to force families into difficult choices between basic needs, education, and healthcare.
The World Bank’s study confirms that food constitutes over 60 percent of household expenditures for low-income families in Nigeria. Thus, any rise in food prices significantly impacts their standard of living.
In contrast, wealthier segments of society, who spend a smaller proportion of their income on basic necessities, experience a muted impact from food inflation. This disparity highlights the growing social divide, with the affluent able to absorb higher costs or benefit from inflation through strategic investments, while the less privileged face increasing financial strain.
The removal of fuel subsidies in 2023, while aimed at ensuring fiscal stability, has disproportionately affected the poor. Fuel prices have surged, with average transportation costs rising to about N800 in most filling stations, except NNPCL outlets, according to BusinessDay findings.
This increase has driven up the cost of goods and services across the board, creating a significant burden for the poor while remaining manageable for the wealthy.
The social consequences of Nigeria’s inflation crisis are profound. Rising living costs are fuelling social discontent, as evidenced by sporadic protests between August 1 and 10, organised by unknown groups under themes like #EndBadGovernance, addressing the rising cost of living.
These protests reflect a broader sense of injustice and inequality felt by many Nigerians, where the majority struggle to afford basic necessities while a small elite continues to thrive.
The educational sector is also feeling the impact, with inflation and rising costs forcing many parents to withdraw their children from school, exacerbating the cycle of poverty.
According to UNICEF, Nigeria has 18.3 million out-of-school children, the highest number globally. This issue has worsened with inflation, which hit 21.47 percent in November 2022. Nearly half of Nigerian children live below the national poverty line, and six out of ten children under five experience multidimensional poverty.
Read also: Nigeria’s inflation rate falls, yet daily struggles for consumers persist
As of May 2023, UNESCO estimated that out-of-school children had risen to around 20 million, though the Nigerian government disputes this figure.
UNICEF’s initiatives, aimed at reducing the out-of-school crisis by 2027, focus on improving foundational literacy and numeracy across 21 states and enhancing educational financing in 12 states. These efforts are crucial as Nigeria grapples with poverty and educational inequality.
Potential policy solutions
The Central Bank of Nigeria (CBN) should integrate social welfare considerations into its policy decisions to avoid the so-called “cobra effect.” By incorporating measures that protect and support vulnerable populations, the CBN can mitigate unintended negative consequences and ensure that economic policies do not disproportionately burden the poor.
Addressing social welfare is crucial for alleviating economic pressures on low-income families and fostering a more equitable economic environment.
Furthermore, addressing expenditure misallocation and improving resource allocation efficiency are vital for reducing inequality. Reliable data are necessary to effectively identify and target vulnerable populations.
Enhancing transparency and accountability in government spending will ensure that resources are directed to those who need them most.
Conclusion
Nigeria’s inflation crisis is more than an economic issue; it is a social one that threatens to deepen the divide between the rich and the poor. As prices continue to rise, the most vulnerable are pushed further into poverty, while the wealthy remain relatively insulated from the worst effects.
Addressing this growing inequality requires bold and comprehensive policies that not only stabilise the economy but also ensure that the benefits of growth are shared more equitably. Without such measures, Nigeria’s social fabric will continue to fray, with potentially dire consequences for the country’s future.
The challenge for Nigeria’s policymakers is clear: to not only combat inflation but also bridge the widening gap between rich and poor, ensuring that all Nigerians can benefit from the nation’s wealth and potential.
Oluwatobi Ojabello, senior economic analyst at BusinessDay, holds a BSc and an MSc in Economics as well as a PhD (in view) in Economics (Covenant, Ota).
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