Connect with us

Business

Nigeria’s inflation rate ballooned by 170% under President Buhari in 7 years

Nigeria’s inflation rate ballooned by 170% under President Buhari in 7 years

Nigeria’s consumer price index (CPI), which is used to measure the level of inflation in the country has risen by 170.2% under President Muhammadu Buhari’s administration, between June 2015 and July 2022.

This is according to data tracked and analysed by Nairalytics – the Research arm of Nairametrics. Recall that the president was sworn into office as the 15th President of the federation on Friday, 29 May 2015, following the presidential general election held, a position which he has occupied since then.

During the period, Nigeria’s consumer price index rose from 171.6 index points recorded in May 2015 to 463.6 points in July 2022, indicating an increase of 170.2%. In the same period, the food index rose by 209.5%, while core inflation spiked by 132.2% in the same vein.

The year-on-year inflation rate accelerated to a 17-year high in July 2022, following significant rise in the cost of energy, and staple food items. The National Bureau of Statistics (NBS) reported that Nigeria’s inflation rate rose to 19.64% in July 2022 from 18.6% recorded in the previous month.

Nigerians now have to grapple with the high cost of virtually everything, as the underlying issues persist across board. First, let us look at the disaggregated indices.

  • The health index, which tracks the cost of health services in the country has surged by 122.3% between May 2015 and July 2022, while on a year-on-year basis, the health inflation rate stood at 15.95% in July from 15.6% recorded in the previous month.
  • Also, clothing and footwear index spiked by 146.3% in the review period, with the year-on-year rate at 17.73%.
  • Similarly, the transportation index jumped by 141.7% in the seven-year period, education recorded a 132.5% increase, restaurants and hotels (132.5%).
  • It is worth adding that, despite significant intervention to reduce Nigeria’s dependence on food importation, we are largely exposed to the global food crisis. Notably, the imported food index rose by 201.5%, a major contributor to the rise in the food index.
  • In the same vein, house water, electricity, gas, and other fuel recorded a 119.7% increase in its index between May 2015 and July 2022.

Genesis of Nigeria’s inflationary woes

Though the Nigerian economy is characterised by various structural and socio-economic issues, which have seen the country maintain a double-digit inflation rate since February 2016. Surprisingly, Nigeria enjoyed a single-digit inflationary rate regime between January 2013 and January 2016.

However, a combination of ineffective policies, global economic headwinds, and socio-economic vices, have seen Nigerians purchasing power eroded at a very fast pace. With a 20% inflation rate in sight, last of which was recorded in September 2005 (17 years ago).

  • We take a look at some of the factors and policies that have bedevilled Nigerians’ purchasing power.

Over-reliance on oil revenue – 2016 oil crash

  • In 2016, Nigeria’s economy dipped significantly characterised by five consecutive quarters of GDP contractions from Q1 2016 through to Q1 2017.
  • The decline which was attributed to a significant crash in the price of crude oil and Nigeria being overly reliant on crude oil as a source of revenue suffered deeply, with the federal government recording a fiscal deficit of N2.14 trillion and N4.35 trillion the following year.
  • The economic nosedive during the period also caused a significant hike in price of goods and services as the headline inflation rate rose from 9.62% in January 2016 to a peak of 18.72% in January 2017 before moderating. This is after the Central Bank had raised interest rates twice to curb the racing inflationary pressure.

Land border closure – 2019

  • Following the downturn caused by the crude oil market volatility from 2016 through to 2017, the Nigerian president in a bid to diversify the economy and encourage local production and consumption of agricultural produce ordered the closure of all land borders in the country.
  • Specifically, on the 19th of October 2019, the Comptroller-General of the Nigerian Customs Service, retired Col. Hameed Ali at the order of the president, announced complete closure of the Nigerian land border, noting that all import and export of goods from the country’s land border were banned until there is an agreement with neighbouring countries on the kind of goods that should enter and exit Nigeria.
  • This is following an initial announcement by the CBN in 2015 to ban a list of 41 imported goods and services from accessing the official Nigerian Foreign Exchange Market. This means that international traders, particularly importers would have to source forex on their own to meet import bill obligations.
  • Fast forward to 2019, the prices of most food items surged significantly, items such as rice and bread, which are major everyday foods for Nigerians witnessed unprecedented levels of price increases during this period.
  • Consequently, Nigeria’s inflation rate hit 11.61% in October 2019, and continued upward, further exacerbated by the covid-19 pandemic in 2020.

Covid-19 pandemic/Food supply chain disruption – 2020

  • The covid-19 pandemic, which struck in 2020 is dubbed one of the worst and most deadly global pandemics in the history of mankind, killing over 6.46 million people worldwide to date. The coronavirus disease due to the way it spread, necessitated the need to order movement restrictions and social distancing, a move which caused the global economy dearly.
  • As a result of the travel restrictions and lockdown, food supply chains were disrupted, economic activities contracted and prices of food and services, especially in the health sector surged during this period. This is coupled with Nigeria’s inability to meet local demands, hence relying on importation (imported inflation).
  • In a bid to fast-track the recovery of the economy, the central bank embarked on numerous interventions, pumping more monies into the economy to drive growth in the real sector, which paid off, as Nigeria’s GDP recovered immediately after the recession witnessed in Q3 2020.
  • However, more currency in the economy meant “too many Naira chasing too few goods”, which is a typical definition for demand-pull inflation. Hence, Nigeria’s inflation rate accelerated from 12.13% recorded in January 2020 to as high as 18.17% in March 2021, before moderating, albeit at a very slow pace.

Russia-Ukraine war, Oil price bubble, FX crisis – 2022

  • The Russia-Ukraine war was the icing on the cake, which caused an unexpected rise in the price of crude oil, consequently leading to a global energy crisis as prices of gasoline surged across the world and piled more pressure on the Nigerian government which is still paying subsidies for petrol.
  • However, the prices of diesel increased by almost 300% across the country, while the operating costs of most companies in the country witnessed a tremendous uptick. The companies on the other hand, shifted the high costs to the consumers by increasing prices, hence more inflation.
  • Similarly, with countries like the USA, Canada, and the UK, all recording record high inflation numbers and Nigeria being an importing country from these countries, it is only fair to say at this point we were dealing with a double whammy problem (high energy prices and imported inflation).
  • The issue was further worsened by the crash in the exchange rate as a result of sustained FX scarcity, which saw the naira trading at over N700 against the US dollar at the parallel market. Also, as Nigerians continue to import most of their consumption from other countries, a further rise in the cost of almost everything was inevitable, hence a 17-year high inflation rate in July 2022.

It is worth adding that other factors such as insecurity, bad infrastructure, and corruption amongst others are part of the underlying factors also contributing to Nigeria’s inflationary pressure.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published.

15 − eleven =

Business

UK’s Truss defends economic plan that sent pound tumbling

UK’s Truss defends economic plan that sent pound tumbling

British Prime Minister Liz Truss on Thursday defended her economic plan and shrugged off the negative reaction from financial markets, saying she’s willing to make “difficult decisions” to get the economy growing.

In her first public comments since the government’s announcement of billions in uncosted tax cuts roiled markets and drove the pound to record lows, Truss said Britain was facing “very, very difficult economic times.” But she said the problems were global and spurred by Russia’s invasion of Ukraine.

She spoke after the Bank of England took emergency action Wednesday to stabilize U.K. financial markets and head off a crisis in the broader economy after the government spooked investors with a program of unfunded tax cuts, sending the pound tumbling and the cost of government debt soaring.

Truss told BBC local radio that “we had to take urgent action to get our economy growing, get Britain moving and also deal with inflation.”

“Of course lots of measures we have announced won’t happen overnight. We won’t see growth come through overnight,” she said. “What is important is that we are putting this country on a better trajectory for the long term.”

In a series of interviews, Truss said her government’s decision to cap energy bills for households and businesses would help tame inflation and help millions of people facing a cost of living crisis.

But it was not that decision that alarmed the markets. It was the government’s announcement on Friday of an economic stimulus program that included 45 billion pounds ($48 billion) of tax cuts and no spending reductions — without an independent economic assessment of the cost and impact.

The Bank of England warned that crumbling confidence in the economy posed a “material risk to U.K. financial stability,” and said it would buy long-term government bonds over the next two weeks to combat a recent slide in British financial assets.

The bank’s former governor, Mark Carney said that the government and the central bank appeared to be pulling in different directions.

“Unfortunately having a partial budget, in these circumstances — tough global economy, tough financial market position, working at cross-purposes with the Bank — has led to quite dramatic moves in financial markets,” he told the BBC.

The pound traded at around $1.08 on Thursday, above its record low of $1.0373 on Monday. It has lost some 4% of its value since Friday.

Continue Reading

Business

Stimulus Packages Provided During Pandemic Triggered Inflation- CBN

The Central Bank of Nigeria (CBN) has attributed the rising inflationary rates to the stimulus packages provided to citizens during and after the pandemic.

It added that although this increased spending, it also created global supply challenges.

CBN’s director, Monetary Policy Department, Hassan Mahmoud, said this on Wednesday at a post-MPC briefing tagged: “Unveiling Facts behind the Figures’’.

The Monetary Policy Committee had on Tuesday, unanimously voted to increase interest rate to 15.5 per cent.

“A lot of households and small businesses were injected with stimuluses; the U.S did two trillion dollars, Nigeria did about five trillion Naira, these increased the ability of people to spend.

“But the supply side could not meet up with the demand because that volume of injection was far more than the regular intake for those economies, this made prices go up,’’ he said.

Mahmoud also blamed the Russian-Ukraine war, as well as the resurgence of COVID-19 in China for the rise in global inflationary trend.

“That region accounts for more than 50 per cent of global commodity supply and 38 per cent of global oil and gas supply. The war resulted in some shortages which made prices go up.

“Then the COVID-19 lockdown in China. The country is the largest importer of commodities across the globe,’’ he added.

Continue Reading

Business

China’s yuan slides to 14-year low against US dollar

China’s yuan slides to 14-year low against US dollar

China’s yuan fell to a 14-year low against the dollar Wednesday despite US central bank efforts to stem the slide after U.S. interest rate hikes prompted traders to convert money into dollars in search of higher returns.

A weaker yuan helps Chinese exporters by making their goods cheaper abroad, but it encourages capital to flow out of the economy. That raises costs for Chinese borrowers and sets back the ruling Communist Party’s efforts to boost weak economic growth.

The yuan fell to 7.2301 to the dollar, its lowest level since January 2008. One yuan was worth about 13.8 cents, down 15% from its March high.

The yuan has exceeded expectations it might fall to 7 to the dollar after the Federal Reserve started aggressive rate hikes to cool inflation that is at a four-decade high. The Fed has raised rates five times this year and says more increases are likely.

By contrast, the People’s Bank of China has cut interest rates to boost growth that fell to 2.2% over a year earlier in the first six months of 2022 — less than half the official 5.5% target.

The yuan is allowed to fluctuate up or down 2% from its starting price each day in tightly controlled trading. That prevents big daily swings, but down days can add up to a big change over time.

To shore up the exchange rate, Beijing cut the amount of foreign currency deposits Chinese banks are required to hold as reserves to 6% from 8% as of Sept. 15. That increases the amount of dollars and other foreign currency available to buy yuan, which should push up the exchange rate.

Still, that reserve cut is unlikely to stop a slide that is driven by “a strong U.S. dollar and the expectation of more Federal Reserve hikes,” said Iris Pang of ING in a report.

“Less aggressive rate hike talk” might help the yuan rally, but it might weaken further “if the Fed maintains its very hawkish tone” into next year, Pang wrote.

Chinese officials have previously promised to avoid “competitive devaluation” to gain an advantage in trade.

The yuan sank in 2019 during trade tension with then-President Donald Trump. That prompted suggestions Beijing was trying to reduce the impact of U.S. tariff hikes, but there was no official confirmation. The currency later strengthened.

Other governments also are struggling to manage capital flows under pressure from Fed rate hikes. On Friday, Vietnam’s central bank raised a key interest rate in what economists said appeared to be an effort to stop an outflow of money in search of higher returns.

Continue Reading
Advertisement

Trending