How Rising Inflation in Nigeria Affects You

The world is currently battling with unprecedented levels of high inflation rates, triggered by the Russia-Ukraine crisis, which has caused a significant hike in energy prices and by consequence, a spike in the price of food and services.

While, Nigeria’s inflationary pressure cannot be isolated from the global energy crisis, food supply shocks, and global inflationary uptrend, Nigeria seems to be bearing the brunt of the spike in commodity prices.

Nigeria’s inflation rate spiked to a 30 years record high in May 2024, hitting 33.95% and representing its 5 consecutive monthly rise in the year, with energy and food prices rising to record levels. The unprecedented high food inflation in is connected to the subsidy removal on fuel thereby increasing costs of production and transportation; and the insecurity in the North, which deters farmers from cultivating, and ransoms paid to bandits by farmers to allow them farm and harvest their farm produce. Nigeria's food inflation rose to all-time high of 40.66% in May, 2024, representing a 15.84% increase from 24.82% recorded in May 2023 according to data by NBS.

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The United Kingdom is currently dealing with a 40-year inflation rate of 9.1%, Germany’s inflation rate soared to 7.9% in May 2022, Ghana’s rate peaked at an 18-year high of 27%, all as a result of the global trend caused by bubbling crude oil prices, sanctions on Russia’s trade amongst others.

In the same vein, the trillions of dollars released into the global economy by world central banks in 2020, in order to curb the effect of the COVID-19 pandemic is still causing a ripple effect in the prices of goods and services as a result of excessive liquidity.

Meanwhile, central banks across the world have raised their interest rates to curb the rising inflation. The likes of USA, Canada, UK, Ghana, South Africa have all raised their interest rates to combat rising prices of goods and services.

Likewise, Nigeria’s Central bank followed suit with a 150 basis-point hike in its interest rate to 13%, the first hawkish move by the apex bank since July 2016. While the move is partly to curb the galloping pace of inflation rate, it is also geared at attracting foreign inflows into the economy to ensure the stability of the Nigerian exchange rate.

The International Monetary Fund (IMF) has projected Nigeria’s inflation to remain elevated, with high food prices raising food security concerns in the country. The Washington-based institution however projected a GDP growth of 3.3% year-on-year for 2024.

On the other hand, the Central Bank of Nigeria (CBN) attributed the rising inflation rate to a combination of persisting high food and energy prices, supply chain disruptions associated with the impact of sanctions against Russia, exchange rate pressure, capital flow reversals, as well as underlying legacy constraints.

High inflation basically erodes the purchasing power of the citizens and affects all areas of one’s spending. Below is a list of how inflation affects you:

1. Exchange rate

The rising global inflation rate means Nigerians will be paying more for imported goods, which would trigger surge in the demand for forex in the country, consequently leading to further depreciation of the local currency.

A look at the official forex market showed that Naira is currently trading at N1,488/$1 falling from the average of N750/$1 recorded in same month of the previous year. This is despite the constant intervention of the Central Bank in the market to manage exchange rate volatility.

On the reverse side, the currency has faced worse downturn in the less regulated markets like the parallel and P2P markets, where naira is trading about N1500 to a dollar as against N740/$1 traded as of this time last year.

The apex bank is likely to roll out more stringent measures to curb the rising inflation, with the CBN treasury bills already printing a negative yield of over 11.6% in its recent t-bills auction, while FGN Savings bond printed a negative real yield of 9.55 in May 2024

Read also: This is not Right Time to Invest, Hold Your Money

2. Interest rates

The Central Bank raised the benchmark interest rate by 1500 basis points to 26.25% in May 2024, citing inflation and low forex inflow as major reasons for the hawkish move.

Despite the raise, Nigeria’s inflation rate grew higher in the same month, with further uptick expected in June, considering the surge in energy and food prices.

The increase in the interest rate means that Nigerian businesses will get credit from banks at a higher rate compared to when the rate was pegged at 17.5% in 2022. The Central Bank is likely to raise the interest rate further in the coming MPC meeting as inflation rate remains stubbornly on the rise.

3. Food prices

Food prices have recorded significant increases in recent times, most of which were attributed to the increase in the cost of transportation, exchange rate volatility, seasonal fluctuations amongst others.

The recent food price survey by Nairametrics, revealed that the price of rice, onion increased by 105% and 250 respectively, as a bag of rice which used to sell for N35000 is now sold for N75000-N90000 depending on the brand and your location. Food is an essential commodity for Nigerians, as most of our household expenditure is made on food items.

Hence, a rise in inflationary pressure, and the continuous rise in the global food prices result into high food prices in Nigeria and continuously erodes the purchasing power of citizens.

Rising inflationary numbers could lead to consumers prioritising their needs in their order of importance, however, for giffen goods, whose demand would always go up irrespective of the price, consumers would have no choice but to buy.

4. School fees

Nigerian student home and abroad are likely to be paying higher tuition fees, as academic institutions are expected to review their fees upward due to the crippling surge in operating expenses.

This means that students in private schools (Universities, primary, and secondary) could be paying higher school fees, while students in public tertiary institutions have been forced to stay at home due to ASUU strike action, which has lingered for over four months.

5. Transportation/Travel expenses

Nigerians have had to endure a surge in transport cost across different medium of transportation in the country. The price of Jet-A1, popularly known as aviation fuel has risen to unprecedented level causing a significant hike in airfares across the country.

The increase in the price of diesel and petrol has also resulted in a spike in transportation cost, indicating that Nigerians who want to travel either for business or leisure will have to pay higher cost to travel.

6. Energy bills

According to data from the National Bureau of Statistics, the average price of diesel per litre in Nigeria rose by 300% to N1400 in May 2024, this is expected to be higher in June, considering some outlets are already selling diesel for as high as N1600 per litre.

Also, the average cost of household kerosene increased by 160% to sell for N1600 in May, while the cost of refilling a 12.5kg cylinder of cooking gas skyrocketed by 103% to sell for an average of N12,200

In recent weeks 12.5kg of cooking gas has topped N13,250 in major stores in Lagos State.

There has also been fuel scarcity across the states and the federal capital, which has driven the price of petrol to as high as N750 per litre from N580.

NERC, April increased the electricity tariffs by 240-300% 

This implies that Nigerians will continue to grapple with high cost of energy, especially since electricity supply in the country is still very much below required levels.

Ikechukwu Evegbu

Ikechukwu Evegbu is a graduate of Statistics with over 10 years experience as Data Analyst. Worked with Nigeria's Federal Ministry of Agriculture and Rural Development. A prolific business development content writer. He's the Editor, Business Compiler

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