Inflation: The monster we created (I)

Inflation in Nigeria has been termed a monster that refuses to let go of its grip, regardless of several sovereign intervention policies devised to deal with it.

Nigeria’s ugly inflation record has continued to mock the efforts of central bankers over the years as they appear to battle tooth and nail against this much-dreaded evil; year in, year out, the price of goods and services in the country continue to rise, and the standard of living of most Nigerians drop consequently.

Data from the world development indicators (WDI)) of the World Bank shows that historically, Nigeria’s inflation rate has followed an erratic trend, often rising sharply and receding almost instantaneously in the year that follows in some cases. Annual inflation rate figures for Nigeria from 1960, when the country gained independence till date, show that Nigerians have coped with highly unusual times where the living standards of the average citizen were worth nothing consequential.

The country resumed its post-Independence era on a very comfortable note. At 5.44 per cent, Nigeria’s largely agro-based economy was suitable for all, and the land prospered. However, just nine years later, the country’s monetary management could not cope well with the rising demand that accompanied national prosperity at that time, and the general price level crossed the one-digit mark for the first time since Independence. Two years before 1969, the nation’s inflation rate was at -3.73 per cent and 0.48 per cent in 1967 and 1968, respectively. In 1969, however, prices had taken their hugest leap to 10.16 per cent, representing an average yearly change of 10.63 per cent.

Thinking that the monetary authorities would work hard to reverse the price shock, Nigeria’s budding economy began on a double-digit inflation cruise – one which it would rarely recover from. Apart from occasional declines to a single-digit figure (on a per-year basis), which would barely last a year or two, the country’s inflation woes continued to worsen.

By 1988, 28 years after Independence, the country’s general price level had reached 54.51 per cent. Five years after, the country’s price level had reached 57.17 per cent. By 1999, when the nation dumped the military-style of governance in anticipation that democracy would usher in a renaissance for all, inflation had miraculously dipped to an all-time yearly low of 6.62 per cent. One would quickly think at this time that Nigeria’s inflation miracle had finally come.

Read also: Explainer- Why Nigeria’s inflation is rising

From 2000, a new climb resumed, and this time, the increasing trend became more consistent and somewhat predictable. How the nation moved from an inflation rate of 6.93 per cent in the year 2001 to 12.22 per cent in 2012 remains a question to ask Nigeria’s policymakers and government officials. Between 2012 and 2015, however, there seemed to be a relative calm in the cresting nature of domestic price figures. By 2016, another double-digit era resumed again, starting from 15.68 per cent in that year to the current price level of 16.82 per cent, as recorded by the National Bureau of Statistics (NBS) in April 2022.

Nigeria’s high inflation experience during the military era of the 1970s was largely driven by high money supply growth and some structural factors. Huge recurrent military expenditure gave room for excessive spending, while an oil-rich environment further encouraged more expenditure. Climatic conditions, wage spirals due to oil enrichment, changes in the production structure of the economy, currency devaluation and changes in the country’s trade terms were also contributing factors to elevated prices at that time.

In the ’90s, the nation’s inflationary experience was traceable to the excess money supply in circulation, scarce foreign exchange supply, severe shortages in the supply of commodities for households and business firms, as well as the sustained labour and political unrest following the annulment of the 1993 June elections. These occurrences largely contributed to exaggerated prices in the economy during the period. Still, there seemed to be no feasible policy fix that would command a trend reversal in favour of the country’s heated economy.

Current experiences with elevated prices have also come with a mix of causal factors. However, it must be clearly stated that historical occurrences of high inflation in Nigeria were not incurable situations; rather, Nigeria’s government officials and policymakers did not seem intentional enough to cure the ailment that befell the country. While the determinants of inflation in Nigeria are indeed multidimensional, different remedies are based on the source, intensity, severity and persistence of the price increase.

Arguably, Nigeria’s current inflationary pressure is least caused by the outpacing of national output over money supply growth. Yes, the country’s production and revenue forte has weakened in more recent times, and this is majorly a result of the dwindling global oil prices and the consequent slowing output growth experienced pre-COVID, the full outbreak of COVID-19 and the consequent crash in global oil prices, supply chain disruptions and elevated energy and food prices as a result of the European labour crisis and the Russia-Ukraine tussle, among other factors.