Nigeria’s inflation rate spiked to an 11-month record high in May 2022, hitting 17.71% and representing its fourth consecutive monthly rise in the year, with energy and food prices rising to record levels.
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.
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 3.4% year-on-year for 2022.
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 N420.5/$1 falling from the average of N416/$1 recorded in 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 above N600 to a dollar, despite the starting the year at N565/$1.
- 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 June 2022.
2. Interest rates
- The Central Bank raised the benchmark interest rate by 150 basis points to 13% in May 2022, citing inflation as a major reason for the hawkish move.
- Despite the raise, Nigeria’s inflation rate grew higher in the same month, with a 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 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.
3. School fees
- Nigerian students 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 the ASUU strike action, which has lingered for over four months.
4. 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, and onion increased by 9.12% and 57.4% respectively. 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.
5. Transportation/Travel expenses
- Nigerians have had to endure a surge in transport costs across different mediums 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 costs, indicating that Nigerians who want to travel either for business or leisure will have to pay a 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 181% to N671.1 in May 2022, this is expected to be higher in June, considering some outlets are already selling diesel for as high as N850 per litre.
- Also, the average cost of household kerosene increased by 87% to sell for N679.5 in May, while the cost of refilling a 12.5kg cylinder of cooking gas skyrocketed by 103% to sell for an average of N8,726.3.
- It is worth noting that Nairametrics reported earlier in the week that a 12.5kg of cooking gas has topped N11,250 in major stores in Lagos State.
- There has also been fuel scarcity across some major cities in the south-west and the federal capital, which has driven the price of petrol to as high as N190 per litre from N165.
- This implies that Nigerians will continue to grapple with the high cost of energy, especially since electricity supply in the country is still very much below the required levels.