Nigeria’s inflation rate is gradually slipping out of control. For a country with the world’s highest number of people in abject poverty, an inflation rate sailing perilously close to 20 per cent is something of grave concern to everyone, especially as Nigeria has no social security system.
Headline inflation rate of 19.6 per cent and food inflation at 22 per cent are worrisome. However, they have not reached alarming proportions. Argentina, a highly developed developing economy with gross domestic product (GDP) of $500 billion for a population of 45 million is creaking under headline inflation rate of 71 per cent.
Developments in Argentina suggest that Nigeria’s inflation rate of 19.6 per cent is still light years below crisis point. However, there are very few things one could use to draw an analogy between Nigeria and Argentina.
Argentina’s economy is creaking under the crushing weight of a national debt of $305 billion while Nigeria’s national debt is a modest $41 billion.
That probably is the end of the analogy. Argentina borrowed massively to sustain a social security system that provides for its aged and jobless compatriots. Nigeria’s modest debt largely sustains the indefensible opulent lifestyle of government officials.
The poor hardly benefit from the mountain of debts chalked up in the last seven years. Conversely, the exorbitant cost of servicing the mountain of debts is partially responsible for the bewildering inflation rate which will ultimately push millions more into abject poverty.
Ironically, Argentina with crushing debt burden and spiraling inflation has 30 per cent poverty rate where Nigeria languishes with 40 per cent.
That is why an inflation rate of 19.6 per cent is something of a calamity to the 130 million Nigerians in abject poverty. The system cannot protect them.
To the poor in Nigeria, inflation at 20 per cent is more dangerous than the 71 per cent in Argentina. The reason is that the poor in Argentina can fall back on social security.
What makes Nigeria’s seemingly modest inflation rate alarmingly dangerous is that no one knows precisely how to tackle it. The Central Bank of Nigeria (CBN) has developed a rather unilateral approach to the fight against inflation.
It fights inflation with ineffectual monetary policy instruments when in reality the situation requires a dexterous combination of monetary and fiscal policy instruments to tame the surging inflation.
The federal government has done practically nothing to tame inflation. In fact, it is rather fueling it through ways and means funding of government’s yawning budget deficits. Besides the troubling national debt now standing menacingly at N100 trillion, the federal government is indebted to the CBN to the tune of N19.9 trillion.
That is the amount the CBN prints to intervene when government sails perilously close to bankruptcy. It is partially responsible for the surging inflation because it is money not earned through productive engagements.
Nigeria funds its deficit partially by printing money that ends up exaggerating money supply and fueling inflation.
The National Bureau of Statistics (NBS) blames the surging headline inflation on escalating food and energy costs, among others.
The federal government is directly responsible for the escalating energy cost. It has defiantly ignored calls to privatise Nigeria’s cash-guzzling refineries to enhance their performance.
Consequently, corruption has crippled the refin+eries. Nigeria imports all its refined petroleum products with a persistently depreciating naira.
That explains why a litre of diesel now sells for N1, 000 in some states. Those who expected the emergence of new yam to moderate food inflation are resoundingly disappointed as outrageous haulage cost, corruption and greedy unionists combine to price new yam out of the reach of many in the lower end of the middle income bracket. Right now, the cost of transporting a tuber of yam from Benue State to the market in Lagos is more than the farm value of the yam.
An articulated truck hauling yam from Benue to Lagos burns a minimum of 1,000 litres of diesel for the trip. That alone is N1 million. Consequently, the cheapest cost of that trip is N1.5 million.
If the truck carries 3,000 tubers of yam, then the cost of transporting a tuber of yam from Gboko to Lagos stands menacingly at N500. Again, that explains why a medium size tuber of new yam sells in Lagos for N3, 000.
The same reason is responsible for the tripling prices of onions, fresh tomatoes and other food items. Locally refined diesel cannot attract a pump price of more than N300 per litre. If that was the situation on the ground, we would be talking about inflation in low double digits.
Nigeria produces 48 per cent of the cooking gas consumed in the country and imports 52 per cent with a weak naira. As if the cost of importing with a weak currency was not enough torment for consumers, government stands around and slams a 7.5 per cent value added tax (VAT) on the imported cooking gas. Consequently, the 12.5kg cylinder of cooking gas now carries a price tag of N10, 000, up from N4,500 one year ago. Many who have food cannot find the fuel to cook it.
The surging price of cooking gas has transferred the pressure to the prices of coal and even fire wood. A bag of coal that sold for N1, 400 a year ago now sells for N4, 500. Many homes that cannot afford the escalating cost of cooking gas and coal have switched to fire wood. That development will automatically quicken the journey of Sahara Desert to the Atlantic Ocean, thus worsening the climate change crisis plaguing Nigeria.
The irony of the escalating cost of cooking gas is that last year Nigeria flared associated gas worth N350 billion in its oil fields. That again is the consequence of corruption and lack of planning. The truth is that anybody who fails to plan plans to fail. That is the reason for Nigeria’s worsening inflation rate.
The danger in the surging rate of inflation is that Nigeria will remain the global headquarters of poverty for a pretty long time because the surging inflation will push millions more below poverty line as inflation prices many food items beyond their reach.
The federal government has abandoned the fight against inflation for the CBN which depends solely on failed monetary policy instruments for the campaign.
In the absence of effective fiscal policies necessary to complement CBN monetary policy instruments in the fight against inflation, Nigeria has no option than to establish an effective social security system to cushion the effect of inflation against those in abject poverty.
