Inflation may be driven beyond the projected 13% in 2022
Though inflation gradually dropped from 18.17 percent recorded in March to 15.40 percent in November 2021, there are fears that it may be driven beyond the 13 percent projected rate in Nigeria’s 2022 budget. Some indicators may cause inflation to surge in 2022, which may be a burden on the final consumers.
Inflation is the continuous rise in the general price level and a fall in the value of money. Inflation has remained a double-digit in Nigeria and it has posed a serious challenge to both producers and consumers.
Nigerians now pay almost three times the price they paid for the same quantity of goods and services they bought in 2014. Many Nigerians were plunged into poverty in 2021 by inflation, according to the World Bank. If the current inflation problem challenging the Nigerian economy continues in 2022, there is little doubt that there would be an increase in economic hardship and many Nigerians may find it more difficult to survive.
The high inflation in Nigeria can be linked to a high exchange rate, high taxes, insecurity, infrastructural deficiency, and corruption. Inflation has driven the cost of doing business in Nigeria so high. Manufacturers are finding it difficult to cope with the high cost of production.
The director-general of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, confirmed that the manufacturing sector was still battling for survival as its growth rate was not impressive due to the high cost of production. He further stated that the current inflationary condition in Nigeria was adversely affecting the profitability of the manufacturing sector and was partly responsible for its poor competitiveness.
The exchange rate hike has been a serious challenge in Nigeria. It pushed up the prices of imported raw materials, cost of production, and the prices of commodities in 2021.
According to the Central Bank of Nigeria (CBN) report, the official average exchange rate of a US dollar to naira was N403.5858 in 2021. In the parallel market, the average exchange rate was as high as N560. Nigeria’s 2022 budget projected an exchange rate at N410.15 per dollar. The exchange rate in the parallel market may rise beyond N560 in 2022 if the projected rate comes to stay. A high exchange rate would aggravate the already high cost of production which would result in higher inflation in 2022.
Insecurity in the Northern and Middle-Belt regions may contribute to high inflation in Nigeria in 2022. The majority of farmers have not resumed farming due to the fear of being kidnapped, raped, or killed by terrorists. This may lead to food shortages and the high prices of agricultural products in Nigeria in 2022.
Infrastructural deficiency may lead to high inflation in 2022. Most of the roads in Nigeria are not in good condition. The high cost of moving products from the rural areas to the urban areas will be passed to the consumers. According to the former director-general of Infrastructure Concession Regulatory Commission (ICRC), Chidi Isuwa, Nigeria has about 195,000km of the road network. He stated further that only about 60,000km was paved and a large proportion of the paved road was in a poor condition due to insufficient investment and lack of adequate maintenance.
Also, the epileptic power supply will aggravate the inflation problem in Nigeria in 2022. The majority of businesses depend on self-generated power sources to power their operations. The high cost of running and maintaining power-generating plants may result in high inflation, unemployment, and business relocation which have the potential of shrinking output.
The proposed introduction of new and further increases in existing pro heath taxes; for example, excise on carbonated drinks has the potential of driving inflation beyond 13 percent in 2022. This is a move by the Nigerian government to raise revenue from taxes to finance its high debt service and budget deficit balance. Carbonated drinks like coca-cola are highly consumed by many Nigerian households. The excise duty of N10/liter imposed on all non-alcoholic, carbonated & sweetened beverages may lead to an increase in the prices of other commodities in the market. This is because; most Nigerians take advantage of a hike on one commodity to inflate the prices of others in the market.
Inflation can be curbed in Nigeria through effective economic policies. The exchange rate should be revalued via an effective monetary policy. Infrastructure development is a pre-condition for investment to strive in any nation. Nigeria’s government should embark on more infrastructure development and restore peace and security in the Northern and Middle Belt to put inflation under control in 2022.
Felix Ashakah is an economics lecturer at Western Delta University, Oghara