With the high cost of living in Nigeria and the deeper dwindling of consumers’ purchasing power, incomes of many Nigerians can only buy less of their usual consumption basket, a situation of the poor getting poorer in real terms, and the middle class getting thinned out.
Nigeria’s inflation rate, the rate at which the prices of goods and services increase, accelerated to 14.23 percent in October, the highest since March 2018.
Driven by a 1.54 percent jump in the month-on-month changes in general prices (1.48 percent m/m in Sept-2020), the inflation data released on Monday by the National Bureau of Statistics (NBS) showed that price increases were observed across all components of the index.
“A higher inflation rate, especially in an environment where above 100 million people are living below the poverty line, means that the cost of living has worsened and more people will enter the poverty line due to higher inflation that has eroded the value of their money,” Yinka Ademuwagun, research analyst, FMCGs, United Capital Plc, said.
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Riding on the directive of President Muhammadu Buhari to have Nigeria’s borders partially closed, the sustained shortfall in domestic food supply relative to the demand, and increased input cost, the increase in the cost of food was the major driver of Nigeria’s inflation rate.
The food inflation sub-index rose from 16.66 percent year-on-year in September to 17.38 percent in October-2020. Food prices increased 1.96 percent in the month as against the 1.88 percent recorded in September.
“This means more hardship for Nigerians. The purchasing power of the average Nigerian will be further eroded due to the higher cost of living,” Ayo Ebo, senior economist/head, research & strategy, Greenwich Merchant Bank, said.
With Nigeria’s current economic situation, the largest economy in Africa can now be best described as one that is stagflated.
The condition, described by slow, declining or contracting economic growth and relatively high unemployment, or economic stagnation, which is at the same time accompanied by rising prices (i.e., inflation), tips Nigeria into top six most miserable countries globally.
As if Nigeria was not already in a bad place, the COVID-19 pandemic and economic losses from the recent vandalisation by hoodlums dealt fresh blows to an economy that was already struggling.
An evaluation of Nigeria’s micro-economic indicator before the pandemic and the protest that hoodlums took advantage of exposes how the recent challenges only made what was already a bad situation worse for the economy.
Economic growth in Africa’s most populous nation averaged 1.2 percent between 2015 and 2019. The problem with that is the population grew two times faster at an average of 2.6 percent per annum.
Nigeria retains a long list of economic reforms that can unlock economic growth and reduce poverty but have been stuck. Decrepit infrastructure and the lack of a functional rail system means Apapa, which houses Nigeria’s main port, remains a crying shame.
When transporting imported goods from the warehouse in Nigeria’s busiest seaport, businesses spend an average cost of $2,050, according to a research firm, SBM Intelligence. This is nearly 10 times the $208 it costs to transport containers from Durban Harbour to a warehouse in South Africa. In Ghana, it costs $285 to transport containers to a local warehouse.
Considering the expected rise in food inflation and the recent hike in the PMS pump price by the petroleum regulators in the downstream sector, research analysts at United Capital expect food inflation sub-index to fuel the upward trajectory of Nigeria’s inflation rate.
With the current inflation figures, the real return on investment for government short-term instrument like T-bills has plunged further to over -13.67 percent, a situation that has forced investors seeking high-yielding instrument to redirect their asset into equities.
“Investors will be on the search for higher returns in the equities and dollar-denominated assets to hedge against the high inflation rate,” Ebo said.
