The worrisome inflation rate

The Consumer Price Index (CPI) report released recently by the National Bureau of Statistics (NBS) stating that Nigeria’s inflation rate rose by 12.82% (year-on-year) in July, the highest rate recorded in 27 months since March 2018 when headline inflation was 13.34% is indeed alarming. The situation could worsen Nigeria’s poverty rate, thus negating the federal government’s Social Investment Programmes (SIPs), which have so far gulped billions of naira.

The report, which states that 12.56% inflation was recorded in June 2020, also shows that Nigeria’s inflation has consistently increased for 11-months, rising from 11.02% in August 2019 to 12.82% in July 2020. The composite food index rose by 15.48% in July 2020 compared to 15.18% in June 2020. This represents 0.34% increase compared to June figures. Also, on a month-on-month basis, the food sub-index increased by 1.52% in July 2020, up by 0.04% points from 1.48% recorded in June 2020. The rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, oils and fats, and fish.

The “All items less farm produce” or Core inflation, which excludes the prices of volatile agricultural produce stood at 10.10% in July 2020, down by 0.03% when compared with 10.13% recorded in June 2020. The highest increases were recorded in prices of medical services, passenger transport by air, pharmaceutical products, hospital services, passenger transport by road, maintenance and repair of personal transport equipment, paramedical services, and vehicle spare parts.

In July 2020, all items inflation on year-on-year basis was highest in Bauchi (16.10%), followed by Kogi state (15.90%), Sokoto and Plateau (15.20%), and Ebonyi state with 15%. On the other hand, Lagos (10.70%), Adamawa (10.60%), and Kwara (10.50%) recorded the slowest rise in headline year-on-year inflation. In terms of food inflation on a year on year basis, Kogi state (20.09%) recorded the highest followed by Sokoto (19.28%) and Plateau (18.05%), while Adamawa (13.37%), Abia (13.33%), and Lagos (13.13%) recorded the slowest rise.

An increase in inflation rate means that fixed income individuals have less purchasing power and their ability to afford the same quantity of goods and services has reduced significantly. Also, with the rise in prices of goods and services, consumers may be more inclined to try and purchase more quickly before prices rise further, which could further have a negative effect on prices of goods and services.

Coming on the heels of the World Bank report that the outbreak of the coronavirus could make an additional five million Nigerians poor, given the imminent recession which is expected to be the worst since the 1980s, the steep rise in the nation’s inflation rate is quite scary. The crisis that is the pandemic, as well as the worldwide crash in oil prices, has set the nation on a downward trajectory. While on one hand, the oil crisis has hamstrung the largest crude producer on the African continent, the pandemic is set to further aggravate the extreme poverty level which already stood as the highest in the world.

Depending on how severe the outbreak of the pandemic is, the World Bank forecasts that the Nigerian economy will shrink between 3.2% and 7.4% this year. Where things do get even worse, the recession could continue into 2021 when the economy could contract 2%, it said. In a report on Nigeria’s economic development, the World Bank said, “Today’s unprecedented crisis will require an equally unprecedented response from the entire Nigerian public sector (and) private sector to contain the outbreak and protect the lives and livelihoods of low-income and vulnerable communities.”

The World Bank had previously projected that two million Nigerians, particularly , would become impoverished; the newly announced five million people that would be faced with poverty comes on top of the previously announced figure. With the threshold for poverty set at those living on less than $2 a day, it noted that in total, 42.5% of Nigerians will be poor. Further worsening the situation is the rise in inflation juxtaposed with a projected 70% hit to oil revenues. The nation is currently having conversations around raising $6.5 billion in funding with the World Bank as well as other multilateral lenders.

The National Social Safety Nets Coordinating Office

(NASSCO) had in February released a statistics from its ongoing assessment in Nigerian communities, which revealed that about 9.45 million Nigerians located in 35 states of the federation are poor.The NASSCO statistics is from the agency’s National Social Register of Poor and Vulnerable Households. According to NASSCO, as of January 31, 2020, the 9.45 million Nigerians in poverty were from 2.25 million poor and vulnerable households. The poor individuals are living in 43,258 communities in 421 and 4,347 wards located across Nigeria.

While commending the Buhari for its poverty alleviation programmes as encapsulated in the SIPs, we hasten to observe that the galloping inflationary trend, if left unchecked could frustrate the federal government’s laudable plan to lift 100 million Nigerians out of poverty in the next 10 years. We, therefore, advise the federal government to put necessary mechanism in place to check the rising inflation in order to make the SIPs a success.