Explainer: What is inflation and how does it affect Nigerians?
Since the beginning of this year, food prices have been soaring in Nigeria, Africa’s largest economy, driving more people below the poverty line and eroding the purchasing power of middle-income earners.
For instance, on Tuesday, July 18, 2023, many Nigerians woke up to the realisation that petrol prices, previously sold at around ₦530 as of 6 a.m. on the same day, had increased to ₦616. In reaction to the increase, motorists increased transportation prices. In a seeming chain reaction, traders, who move a large portion of their goods by road, are expected to increase the prices of their goods to account for the high cost of transportation.
What Nigerians have experienced within the last few days is inflation – the gradual increase in the prices of goods and services over time, which means that the same amount of money you had yesterday won’t buy you as much today.
While several factors contribute to inflation, including the increase in demand, Nigeria’s recent soaring inflation appears to be caused by the economic policies of the Bola Tinuu administration, as well as the lingering insecurity issues across the country that have prevented farmers from cultivating their farmlands.
On Monday, July 17, 2023, the National Bureau of Statistics (NBS) released the June 2023 Consumer Price Index report, which shows that the headline inflation, on a year-on-year basis, increased by 4.19 percent, from 18.60 percent in June 2022 to 22.79 percent in June 2023.
On a month-on-month basis, the purchasing power of Nigerians was eroded by 0.38 percent from May 2023 to June 2023.
While criticisms have since trailed the new data, as many Nigerians claimed that the cost of living has increased significantly within the last month, NBS explained that the new inflation rate might have failed to capture the full increase in the price of commodities “because the data collection for computing the rate for the reference month typically stops around the middle of the month, meaning that the June numbers only reflect approximately two weeks of the policy impact on consumer prices,”.
Responding to the claim, Olufemi Awoyemi, a financial analyst, questioned NBS’s methodology in evaluating the inflation rate.
“This NBS statement is difficult to process and make sense of. We are in mid-July 2023, so why would the reference inflation rate be for half the month of June? Did other months reflect half-month data? When did the data format change? Can half-month data be a proxy for the entire month?”
Also, Wilson Erumebor, Senior Economist and Manager at The Nigerian Economic Summit Group, wrote on Twitter,
“For those saying ‘lag effect,’ take a look at transport CPI (average transport price) alone. From April to May 2023, transport CPI (month on month) grew by 2.2 percent, with no subsidy removal. From May to June, it increased by 2.4 percent with subsidy removal. How is that even possible?”
He added, “Fuel prices and transport costs went up after the President’s announcement that the subsidy is gone. Even if we accept that the figure is for half the month of June, transport prices went up across the country, way more than the drop in demand. The NBS should explain this to us.”
The Impact of Inflation on Nigerians
Inflation can have far-reaching consequences on the lives of Nigerians, affecting them in various ways.
As inflation erodes the value of money, consumers find that they can buy fewer goods and services with the same amount of income. This reduction in purchasing power can lead to a decline in the standard of living, especially for those on fixed incomes or low wages.
With 39.1 percent of Nigerians living below the international poverty line of $1.90 per person per day, according to data from NBS, the fuel subsidy removal is expected to push more people below the poverty line.
Multidimensional poverty, which affects 133 million Nigerians, might increase as cost of living goes up.
Multidimensional poverty measures the percentage of households in a country deprived along three dimensions – monetary poverty, education, and basic infrastructure services, which tends to capture a more complete picture of poverty.
As the cost of living continues to increase, many Nigerians are demanding an upward review of the country’s minimum wage. In June, the Trade Union Congress of Nigeria, TUC, proposed a 566 percent increase in the minimum wage from ₦30,000 to ₦200,000, which they claimed would help cushion the impact of the rising cost of living.
