Inflation slows salaries, wages growth in Q2

Nigeria’s high inflationary pressure which has increased the cost of doing business has led to a slow growth in salaries and wages for employees in the second quarter of 2022, analysts say.

According to new data from the National Bureau of Statistics (NBS), the compensation of employees (wages and salaries) fell to 3.93 percent in Q2 from 6.48 percent in the previous quarter.

The current economic shocks and energy crisis is putting pressure on the labour market, said Temitope Omosuyi, an investment strategy analyst at Afrinvest. “So, major institutions are either laying off their employees or reducing salaries.”

Damilola Adewale, a Lagos-based economic analyst also said the slow growth in salaries and wages means that businesses are facing a tougher period.

“Businesses are facing profitability issues. And as a way of cutting costs they are trying to maintain the current level of their personal cost,” Adewale added.

The country has been grappling with double-digit annual inflation since 2016, with the headline inflation hitting 20.7 percent in September – a 17-year high, according to the NBS.

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The high inflationary pressure, which has been spurred by Foreign Exchange shortages and rising energy costs, has increased operating costs for companies, especially manufacturers.

For diesel, the Russia-Ukraine crisis pushed up its price by 174.2 percent to N789.9 per litre in September from N288.1 per litre in January, data from NBS show.

In a recent presentation, Segun Ajayi-Kadir, director general at the Manufacturers Association of Nigeria (MAN) revealed that manufacturers spent N67.7 billion on alternative energy in H1 this year, a 51 percent rise from N45.0 billion in the same period of last year.

Apart from energy prices, the naira has depreciated against the dollar in the official and parallel markets in recent months, dropping to as high as 440/$1 and 900/$1 respectively.

“With accelerating inflation, the real value of wages will continue to fall, and this affects how far salaries go in the day-to-day life of employees,” Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said in a response to questions.

“The current cost of living crisis we are experiencing now is one of the worst we have ever had in our history. People cannot feed properly and there are no safety nets for businesses or individuals,” Egbesola said.

The fall in real wages, which reflects the power of employee pay after accounting for inflation, is making Nigerians face increasing pressures daily and forcing them to make hard choices as prices of all products continue to rise.

Chinwe Chukwu, a mother of three and trader in Benin, Edo State told BusinessDay that her family’s weekly transportation and food costs have more than doubled to reach about N25,000, despite her family’s efforts to economise.

Maryam Adekunle, a 32-year-old teacher and mother of two in Lagos, says she no longer takes her favourite breakfast owing to the jump in the prices of beverages.

“At home, we don’t buy gas to cook anymore. We now use charcoal as it is cheaper and I do not enter Keke to take my children to school. We have to trek daily to school now because we can’t afford the surge in transportation cost,” Adekunle said.

A July 2022 analysis by the United Nations on prices shows that a 10 percent increase in food prices will trigger a five percent decrease in the incomes of households.

Food prices in Nigeria have surged by over 100 percent since January to date, and going by the UN analysis, the real wages of Nigerians will have decreased by over 50 percent.

“Survival is the most difficult thing in Nigeria now irrespective of whether you are in the upper, middle or lower-income class; as there is no source of income, the surging inflation is not affecting,” Benson Salami-Olayanju, chairman of Panfcm-Tech-Wise Treasure Investment, said.

Over 105 million Nigerians still live in extreme poverty, according to data from the World Poverty Clock of the Brookings Institute. The World Bank recently projected that Nigeria’s accelerating inflation will push an additional 7 million into poverty by the end of 2022.