The world has continued to grapple with unprecedented levels of high inflation rates, triggered by COVID-19 and the Russia-Ukraine conflict, which have triggered a significant hike in energy, food and services prices and by consequence, a spike in the cost of living.
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, which is not unconnected to the country’s heavy reliance on imported goods.
Nigeria’s inflation rate spiked to a 27 years record high in December 2023 hitting 28.92% exacerbating high cost of living as food inflation rose to 33.92%.
Argentina is equally facing hyper inflation as the country’s rate reaches rooftop closing at 211.4% in 2023 and has been projected to rise to 250% in 250%.
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) had projected Nigeria’s inflation to drop to 23% in 2024 leading to reduction in food prices in the country. But going by the free fall of the naira value at the foreign exchange market, seeing naira exchanging for N145/$1 as against N870/$1 as of the time IMF made the predictions, coupled with increasing wage of insecurity in the country, it seems inflation rates will shoot up in the coming months in 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:
Exchange rate
The rising 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 N1,531 falling from the average of N420.5/$1 recorded in the previous year. This is despite the constant intervention of the Central Bank in the market to manage exchange rate volatility. For the first time in history naira now has more value at the parallel market than at the official market as the currency is traded for N1,430%$1 at the parallel market.
Interest rates
The Central Bank raised the benchmark interest rate by 150 basis points to 18.7% in Jul 2023, citing inflation as a major reason for the hawkish move.
Despite the raise, Nigeria’s inflation rate grew higher in the same month, with further uptick expected this year, 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 11.5%. The Central Bank is likely to raise the interest rate further in the coming MPC meeting as inflation rate remains stubbornly on the rise.
Food prices
Food prices have recorded significant increases in recent times, most of which were attributed to the increase in the cost of transportation occasioned by petrol subsidy removal, exchange rate volatility, seasonal fluctuations amongst others.
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 consumer goods, whose demand would always go up irrespective of the price, consumers would have no choice but to buy.
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.
Transportation/Travel expenses
Nigerians have had to endure a surge in transport cost across different medium of transportation in the country owing to high cost of fuels. 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 prices 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.
Energy bills
According to data from the National Bureau of Statistics, the average price of diesel per litre in Nigeria has risen from N850 per litre sold early last years to N978 per liter.
Also, the average cost of household kerosene increased by 97% to sell for N700, while the cost of refilling a 12.5kg cylinder of cooking gas skyrocketed by 190% to sell for an average of N15,000
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.