Nigeria’s rising inflation rate could be a key risk to consumer spending in 2022, as it may reduce purchasing power, limiting spending on essentials, a recent report by Fitch Solutions states.
The report titled ‘Elevated Inflation Will Weigh on Consumer Spending’ predicts real household spending to grow by 3.6 percent in 2022, a slight deceleration from the estimated 3.7 percent growth in 2021.
“The Ukraine-Russia conflict has significantly impacted the global supply prices of key commodities, such as oil and gas, fertiliser, wheat, corn and barley. The commodity price increases are already feeding through into higher consumer prices and will continue to over the year,” the report noted.
Rising consumer prices have the potential to erode purchasing power and inhibit discretionary spending.
According to the National Bureau of Statistics (NBS), Nigeria’s inflation rate rose to 16.82 percent in April 2022, the highest in eight months compared to 15.90 percent in the previous month.
The month-on-month percentage increase (1.76 percent) is also the highest since May 2017.
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Additionally, food inflation which accounts for more than 50 percent of inflation rose 2.0 percent points higher to 18.37 percent, the highest in seven months compared to 17.20 percent in the previous month.
The increase in the prices of bread and cereals, potatoes, yam, and other tubers, wine, fish, meat, and oils was responsible for the rise in the food index.
Peter Hirst, senior analyst at Euromonitor International said as of last year, wheat was Nigeria’s second-largest imported product after petrol, implying that inflationary pressures have been elevated due to supply shortages in Europe on account of Russia’s invasion of Ukraine.
“Inflation would likely increase further as a result of the invasion. The severe dollar shortage could cause further price increases.”
Before the crisis, the full relaxation of the COVID-19 restrictions had impacted positively on household consumption has it returned to positive growth in 2021.
Data from NBS highlights that the annual growth rate in real household consumption expenditure stood at 25.65 percent in 2021 compared to -1.69 percent and -1.06 percent in 2020 and 2019 respectively.
“The observed trend in 2020 indicates that real household consumption expenditure declined in Q1 and Q2 accounting for negative growth rates informed by the COVID-19 pandemic,’ the report stated.
It however added that positive growth rates were recorded in Q3 and Q4 2020 as well as the four quarters of 2021. “On a quarter-on-quarter basis, real household consumption expenditure grew by 13.77 percent in Q3, and 10.45 percent in Q4 2021.”
