Nigeria’s inflation: Pandemic or bad economic policy?
No one feels good paying more for the same. If this is a huge concern for you, you are certainly not alone. Inflation, the persistent change in prices in all sectors of the economy over a period of time is a primary concern to all, especially the poor.
This is because wages and salaries have not increased and it has reduced the buying power or disposable income of an average Nigerian. The rate of inflation in Nigeria from statistical figures and in practical terms seem scary, especially food inflation.
Nigeria’s annual inflation rate fell for the 7th consecutive month to 15.99% in October 2021 from 16.63% in September 2021 according to the Nigeria Bureau of Statistics (NBS).
Some experts have postulated that these statistical figures do not represent reality in practical terms, especially food inflation. The rate of inflation in Nigeria has been attributed to bad economic policies or “Buharinomics” while some experts have suggested the covid-19 pandemic has been a major factor for this economic discomfort.
A bit of inflation is healthy for an economy, but it could also be a source of worry when it goes unchecked. The Central Bank of Nigeria is saddled with the responsibility of handling monetary policy (investment and savings), while the ministry of finance handles fiscal policy (government expenditure and taxation).
In the last Monetary Policy Committee meeting, the CBN retained all policy parameters. Cash reserve ratio at 27.50%, Monetary Policy Rate (MPR) at 11.50%, while liquidity ratio was 30.00%. This is to ensure that there are no policy distortions in the economy.
All these are factors that have a direct economic effect on inflation. Government policymakers have been busy with short-run policies to address these challenges. The covid-19 pandemic crippled economic activities, businesses and companies were shut down leading to heavy job losses in almost all sectors of the economy.
Recession, orchestrated by fall in oil prices in the international market, low taxation, worsen the economic plight of the government. While the Nigerian economy is gradually recovering, as Gross Domestic Product (GDP) grew by 4.03% in the 3rd quarter of 2021. It is worthy of note that the rate of inflation has been fueled by certain factors brought about by the aftereffect of the covid-19 pandemic.
Global demand has surged, just as oil prices have surged in the international market, as OPEC has refused to increase supply to meet demand, the price of crude oil per barrel has increased significantly, same has affected consumption as the rate of consumption surge has not been matched by supply chain, locally and globally.
The shortfall in demand and consumption during the closure of the economy as a result of a sit-at-home policy by the government has been responsible for high demand and consumption. Again, the loss of profit and capital by businesses and companies has made it necessary for their businesses and companies to devise a means to recoup the profit shortfall by any means possible, considering the lack of existence or ineffectiveness of a price control board.
The pandemic of the covid-19 magnitude has led to an increased cost of production. The high cost of raw materials, transportation, and electricity cost can also be attributed to the reason behind the inflation rate.
While we expect the global supply chain to gradually reverse to normal, businesses will transfer the high cost of production to consumers, which will lead to price hikes. High levels of insecurity in all the six geopolitical zones, especially the agrarian northern part of Nigeria, have led to price surges.
Food inflation is caused by the inability of farmers to go to harvest their crops and the high cost of road transportation because of insecurity, as this is a major medium of transportation for agricultural produce.
There are impacts from climate change like flooding, drought, pest, erosion, and rainfall imbalance. The rise in sea level and unpredictable rainfall have affected the dams that are a major source of power supply in Nigeria. The pandemic has also affected service sectors like the aviation and transport sector, tourism, hospitality management, banking, and other essential services because of covid-19 and Nigerians unwillingness to get properly vaccinated.
It is therefore important to note that the Nigerian economy is gradually recovering and witnessing self-adjustment. The covid-19 is becoming part of our social system with the discovery of more variants and insufficient vaccines. These distortions and shocks in the economy must not be left unchecked or allowed to re-adjust. There is a need for conscious and innovative policy solutions to address the factors aiding high inflation in Nigeria as listed above.
While covid-19 will take the blame over economic policies for the regressing Nigerian economy, government policy experts must rise to this occasion and stabilize growth and development in the economy.
Alikor Victor is a health and development economist