Inflation rate in Nigeria— more than a monetary issue
"Prices of essential food items are skyrocketing. For instance, onion balls, dubbed the new gold, currently cost N55,000 per bag, up 175% from January. The price of tomatoes has also doubled from N6,000 per basket to N17,000 according to Price-Watch data."
Inflation is anywhere and everywhere a monetary phenomenon, Milton Friedman believed. If Milton was a Nigerian, he would have restarted this hypothesis. Inflation in the Nigerian context is more a political and fiscal phenomenon, but less monetary. Inflation in simple terms refers to the rising prices of goods and services within the economy.
The core mandate of the CBN borders around monetary issues and price stability - keeping inflation within a single digit band. Yet, from 1999 to date, Professor Charles Soludo is the only governor to have achieved such a feat, an indication that inflation is a hydra-head monster in Nigeria.
Inflation has taken a new dimension in Nigeria, prices are skyrocketing compared to the income of consumers, hereby leaving them worse off (less real income). For instance, a worker receiving the minimum wage of N18,000 in 2015 would be worth (~$100). The same amount in 2020 would be worth less than ~$50, within 5 years, inflation has risen 110%.
Economic theories and hypothesis that inflation is a core monetary issue is a fallacy in the Nigerian context, here are why.
How we got here
As stated, inflation in Nigeria is driven majorly by fiscal and political policies and less monetary.
A plethora of causative factors could be attributed to the recent hike; the refusal to reopen our land borders by the FG, forex scarcity, low crude oil price, the effect of climate change on food production, ban on food importation, banditry, and kidnapping in northern Nigeria especially food-producing states.
In a bid to curtail smuggling, the FG's refusal to reopen the land borders since August 2019 is doing more harm than good. For instance, food-producing companies and their supply chain are heavily reliant on imported raw materials at cheaper costs. This move has forced them to look into the local market for alternatives, at higher prices due to food supply shortages in the country.
Fresh data from the Nigerian National Bureau of Statistics (NBS) shows that inflation is up 14.23% compared to the same period last year. In basic terms, this implies that N100 last year is worth N85 in 2020. The recent price hike is attributed to the surging prices of food and transportation within the country. Food inflation currently stands at 17.38% up from 13.28% in October 2019. Reports have shown that 60% of household income is expended on food in Nigeria. Nigerians have had to resort to survival instinct, reducing luxury items with more spending on stables and food items.
Prices of essential food items are skyrocketing. For instance, onion balls dubbed the new gold currently costs N55,000 per bag, up 175% from January. The price of tomatoes has also doubled from N6,000 per basket to N17,000 according to Price-Watch data. The need to maintain social distancing in public transportation has also tripled down the cost of transportation.
Put together, the state of economic hardship and inflation currently experienced is a mix of counteractive policies from the CBN and the FG.
Combating inflation in Nigeria is beyond orthodox methods of tightening monetary policy. To tackle the challenge of rising prices requires a blend of complementary fiscal-monetary policy by the FG and CBN to repress inflation.
To start, the FG should reopen Nigeria's land borders to boost regional trade although there's the need to rebuild our porous borders. Complimentarily, the CBN should allow the market forces to determine our exchange rate (Naira per dollar). This move will send a strong signal to foreign investors guaranteeing a continued foreign inflow into the country. Target financing to food-producing companies, incentives to local farmers, and relaxation of the ban on food importation will quell skyrocketing food prices currently experienced across the country.
Summarily, a deliberate attempt should be concentrated to curtail inflation in Nigeria. Policies towards addressing food especially should be made paramount to alleviate the current level of economic distress being experienced.
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