There is strong indication to examines the rippled negative effects of rising inflation on the cost of goods and services in recent times.
Nigeria’s economy is badly bruised this time as a spike in inflation has sent prices of commodities and essential services to the rooftop.
Avalanche of damning report on economy
Indications are that Nigeria’s inflation rate in the month of June 2022 increased to 18.60 percent on a year-on-year basis according to the National Bureau of Statistics in its Consumer Price Index June 2022 report.
Inflation refers to changes over time in the overall level of prices of goods and services throughout the economy. The government measures inflation by comparing the current prices of a set of goods and services to previous prices.
The recorded increase in June is 0.84 percent points higher compared to the rate recorded in June 2021, which is 17.75 percent.
This means that the headline inflation rate increased in the month of June 2022 when compared to the same month in the previous year (June 2021).
The NBS said, “In June 2022, the inflation rate increased to 18.60 per cent on a year-on-year basis. This is 0.84 per cent points higher compared to the rate recorded in June 2021, which is 17.75 per cent.
“This means that the headline inflation rate increased in the month of June 2022 when compared to the same month in the previous year (i.e., June 2021). Increases were recorded in all COICOP divisions that yielded the Headline index.
“On a month-on-month basis, the headline inflation rate increased to 1.82 per cent in June 2022, this is 0.03 per cent higher than the rate recorded in May 2022 (1.78 per cent).”
This impact has been felt for the most part in the commodities market, where prices have soared high in recent times.
Food inflation, which comprises more than 50percent of the inflation rate, also rose to 18.37 percent, highest in seven months compared to 17.20 percent in the previous month.
This rise in the food index was caused by increases in the prices of bread and cereals, food products, potatoes, yam, and other tubers, wine, fish, meat, and oils,” the report stated.
If the NBS report is scary, the World Bank recently released Nigeria Development Update for the month of June 2022 is not any palatable.
According to the report, inflation in Nigeria, already one of the highest in the world before the war in Ukraine, is likely to increase further as a result of the rise in global fuel and food prices caused by the war. And that, the World Bank estimates, is likely to push an additional one million Nigerians into poverty by the end of 2022, on top of the six million Nigerians that were already predicted to fall into poverty this year because of the rise in prices, particularly food prices.
“When we launched our previous Nigeria Development Update in November 2021, we estimated that Nigeria could stand to lose more than N3 trillion in revenues in 2022 because the proceeds from crude oil sales, instead of going to the federation account, would be used to cover the rising cost of gasoline subsidies that mostly benefit the rich. Sadly, that projection turned out to be optimistic,” said Shubham Chaudhuri, World Bank Country Director for Nigeria.
“With oil prices going up significantly, and with it, the price of imported gasoline, we now estimate that the foregone revenues as a result of gasoline subsidies will be closer to N5trillion in 2022. And that N5 trillion is urgently needed to cushion ordinary Nigerians from the crushing effect of double-digit increases in the cost of basic commodities, to invest in Nigeria’s children and youth, and in the infrastructure needed for private businesses small and large to flourish, grow and create jobs.”
The report highlights three policy priorities: reducing inflation through a sequenced and coordinated mix of exchange rate, trade, monetary, and fiscal policies including the adoption of a single, market-responsive exchange rate; addressing mounting fiscal pressures at the federal and sub-national levels by phasing out the petrol subsidy (estimated to cost up to N5 trillion in 2022) and redirecting fiscal resources to investments in infrastructure, education, and health services; increasing “pro-health taxes”, and improving tax compliance; and catalysing private investment to boost job creation by improving the transparency of key government-to-business services and eliminating trade restrictions.
“Despite the better-than-expected performance of the services and agriculture sectors and higher oil prices stemming from the war in Ukraine, Nigeria is experiencing a curious case of lower fiscal revenues. This is limiting the government’s ability to expand basic services, support the economic recovery, and protect the poor during this difficult time,” said Marco Hernandez, World Bank Lead Economist for Nigeria and co-author of the report.
In May, the CBN raised the nation’s interest rate from 11.5 per cent to 13 per cent in a bid to address inflation in the nation. The CBN Governor, Godwin Emefiele, disclosed that the Monetary Policy Committee had to increase the monetary policy rate by 150 basis points to prevent inflation.
He said, “Six members voted to raise the MPR by 150 basis points, four members’ by 100 basis points and one member by 50 basis points.
“Members expressed deep concern about the continued uptrend of inflationary pressure in spite of the gradual improvement in output growth.
“Committee notes that the current rise in inflation is inimical to growth and the full recovery of the Nigerian economy.”
Ukraine/Russia connection
Analysts have blamed the surge on the high cost of diesel as a result of the Russia Ukraine war. Diesel, which is used to power generators by most businesses in Nigeria, has impacted prices for consumers.
“The increasing hike in diesel cost due to supply disruptions and rising oil prices has led to manufacturers and other businesses transferring the increasing cost to the consumers,” Peter Hirst, the senior analyst at Euromonitor International said.
He added, “In some cases, some businesses have shut down or reduced the hours of operations. For instance, some banks in Nigeria have reduced their working hours due to the high cost of running on diesel for the whole day.”
Bread bakers’ unrest
Already, the rippled negative effects are being felt by the association of bread bakers, who embarked on four-days warning strike last Thursday to protest what they termed government nonchalance attitude to their plights.
Specifically, the Master Bakers Association of Nigeria (MBAN) and smaller Premium Breadmakers Association of Nigeria (PBAN), which together have 700,000 members, want the government to stop charging a 15% levy on imported wheat, and to be issued licences to import sugar.
According to Mr. Emmanuel Onuorah president of PBAN, prices of staples such as bread, maize and rice have risen since the start of this year, helping to propel inflation to its highest in more than five years in June.
His counterpart at MBAN, Jude Okafor said his members have no option than to shut down for those days to draw government attention to their plight.
Global wheat prices have risen since Russia invaded Ukraine in February, affecting countries like Nigeria that import most of their wheat. Russia and Ukraine are major wheat exporters.
Onuorah said the price of a 50 kg bag of flour had risen 7.4% since June and by more than half this year to N29,000 ($70).
The price of diesel has also soared nearly threefold this year.
The bakers who had last year sent a very strong representation to the Office of Lagos Assembly Speaker, Mudashiru Obasa complained of multiple taxation by sate ministries, agencies and parastatals claiming that they are authorised by law to monitor/oversee premium bakeries include: Lagos State Ministry of Environment; Lagos State Safety Commission; Ministry of Transport (State Carriage); Lagos State Environmental Protection Agency (LASEPA); Lagos State Traffic Management Authority (LASTMA); Lagos State Fire Service; Lagos State Inland Revenue Service (LIRS); Lagos State Emergency Management Agency (LASEMA); 57 local governments and LCDAs in Lagos; Lagos State Signage and Advertising Agency (LASAA); and levies include yearly papers by LGAs/LCDAs; Daily Ticket toll ( LGAs/LCDAs); and Mid-year Papers (LGAS/LCDAs.
They also complained of police harassment of their drivers, who detain their delivery vans not minding that they are distributing essential and perishable goods.
No longer at ease with ‘crazy taxes’
The bakers, most of who lamented that the effects of multiple taxation on their business regretted that all these stumbling blocks have made business operational capacity to drop to below 50 per cent; challenged staff retention and employment of more staff with the attendant drop in PAYE collectible by the state government; and ‘’the likely loss of job/business by over 500,000 bread distributors is imminent and this will further affect a lot of living conditions of their families.’’
Calling for a special protection for the Premium breadmaking industry as a major employer of labour, they appealed to the Speaker “to use your good office to save our businesses from collapse and prevent over one million people in Lagos state under our employment (inclusive of bread distributors) from becoming jobless and being pushed back into already saturated unemployment market.’’
Among others, they appealed to the state government to use of one consolidated body to oversee the monitoring of bread business instead multiple agencies; direct the Commissioner of Police, Lagos State, to stop the harassment, intimidation and indiscriminate impoundments of the delivery vehicle of their members by the police; and make Lagos State Employment Trust Fund (LSETF) World Bank grant and loans available to Premium Breadmakers that applied for it as net employers of labour in Lagos.
What AMBCN is saying
It stated, “Increase in prices of bakery materials, especially flour and sugar having reached unprecedented levels. For example, flour is now between N25,000 and N27,500, so also other ingredients.
“The National Wheat Cultivation Committee already constituted is yet to be inaugurated after over one year. NAFDAC, SON, and NESREA have turned the bakers into money-making machines by charging our members’ outrageous levies even at this very challenging moment.”
It added that the cost of flour, sugar and other materials used in the bakery business had soared beyond the reach of many bakers.
According to the bakers, the harsh business environment, which has forced several bakers to shut down operations, will automatically trigger the cost of the commodity next month. They described the present situation as worrisome and imminently crippling for operators in the bread-making businesses segment.
Divergent opinions
In separate interviews with our correspondent, experts who reacted to the spike in inflation said the authorities have a lot to do to address the situation.
According to the duo of Dr. Muda Yusuf, renowned economist and CEO, Centre for the Promotion of Private Enterprise and Prof. Jonathan Adeyemi Aremu, a Professor of International Economic Relations at the Covenant University (CU), Ota, Nigeria, the apex bank needs to put up more practical measures rather than making cosmetic changes.
Also the Lagos Chamber of Commerce and Industry (LCCI) said the decisions of the monetary policy committee (MPC) of CBN, in Lagos calls for introspection.
Chinyere Almona, LCCI director-general, said there is a need for a corresponding boost to supply-side factors of inflation to accompany the monetary policy instruments by the apex bank to tackle inflation.
She said supply-side factors like foreign exchange scarcity, insecurity, rising costs of fuels and weak infrastructural support for production must be addressed.
However, she admitted that CBN’s rate hike was seen to be a necessary option considering that many other economies were raising rates for the same reason of taming inflation.
The LCCI boss urged the CBN to maintain its targeted intervention schemes for agriculture, manufacturing/industries, energy, infrastructure, healthcare, exports, and Micro, Small, Medium Enterprises (MSMEs).
Way forward
Meanwhile, the president of LCCI, Dr. Michael Olawale-Cole, while addressing a briefing on the state of the economy recently, referred to the latest Economic Development Update by the World Bank.
It highlighted the vulnerability of the economy due to rising inflation pressures, forex illiquidity crisis, worsening insecurity and poor power supply, as well as the existing weak infrastructure.
Olawaie-Cole said LCCI stood by its earlier position that the CBN’s rate hike in its last Monetary Policy Committee meeting would on its own not tame the rising inflation.
He pointed out that the government must invest more in boosting supply and cushioning the cost of production.
“We posit that only the removal of fuel subsidies and the boosting of local refining will resolve the worsening crises in fuel supply and its multiplier effects on production and prices.”
“For food security, scarcity is looming large on the horizon, and if nothing smart and quick is done, it would further exacerbate the plight of the poor,” Olawale-Cole said.
The LCCI chief harped on the urgent need for fuel subsidy removal and the need to curtail, or eliminate oil theft so as to provide fiscal space for subsidised production of goods and services, as well as for infrastructure, health, and education financing.
He underlined the serious and precarious standing of Nigeria in the global Human Development Index (HDI) rating of Nigeria- the index used by the United Nations to measure real development in a country, which put the nation’s index at 0.539 points in 2019, leaving it in 161st place in the table of 189 countries going by the last published data.
He said in addition to the CBN’s monetary stance aimed at tightening and taming inflation, it should go a step further to “ensure that targeted concessionary credit to the private sector is sustained for MSMEs.”
“The CBN also needs to roll out more friendly supply-side policies to boost productive sectors, bolster investor confidence and help attract foreign investment inflows into the economy,” Olawale-Cole said.
