Inflation soared to 21.82 per cent in January 2023 as the country struggled to grapple with persistent fuel and naira crises.
According to the National Bureau of Statistics, January’s inflation rate is 0.48 percentage points higher than the 21.34 per cent that was recorded in December 2022.
It stated that January’s inflation was driven by increases in the prices of food items such as bread and cereal, potatoes, yam and tuber, vegetables, and meat, and rent.
December 2022 was the first time Nigeria’s inflation rate eased after rising consistently for 11 months. While 2022 started with an inflation rate of 15.60 per cent in January, the year ended with inflation at 21.34 per cent.
In 2022, the NBS stated that disruption in the supply of food products, increases in import cost due to naira depreciation, and a general increase in the cost of production drove inflation.
January 2023’s inflation rate of 21.82 per cent is a 6.22 percentage point increase from January 2022’s rate of 15.60 per cent. In July 2022, inflation rose to a 17-year when it hit 19.64 per cent on a year-on-year basis. It has since crossed that.
In its ‘Consumer Price Index’ for January 2023, the national statistics body stated, “In January 2023, the headline inflation rate rose to 21.82 per cent compared to December 2022 headline inflation rate which was 21.34 per cent.
“Looking at the trend, the January 2023 inflation rate showed an increase of 0.47 per cent points when compared to December 2022 inflation rate. However, on a year-on-year basis, the headline inflation rate was 6.22 per cent points higher compared to the rate recorded in January 2022, which was 15.60 per cent.
“This shows that the headline inflation rate (year-on-year basis) increased in the month of January 2023 when compared to the same month in the preceding year (i.e., January 2022).”
Inflation in urban areas rose to 22.55 per cent in the month under review, while inflation in rural areas hit 21.13 per cent.
Food inflation rose to 24.32 per cent because of increases in prices of bread and cereals, oil and fat, potatoes, yam and other tubers, fish, vegetables, fruits, meat, and food products.
This increase in inflation occurred despite the tightening monetary policies of the Central Bank of Nigeria. Last year, the apex bank raised interest rates as well as introduced a naira redesign policy to control the amount of cash in circulation, and curb inflation.
The CBN has since hiked interest rate from 11.5 per cent to 17.5 per cent over a period spanning several months. According to the CBN Governor, Godwin Emefiele, the Monetary Policy Committee will continue to increase the rate until inflation falls considerably.
He said, “We will continue to narrow the gap until we see that the negative interest rate is going towards the positive before we review the stance.
“There is a threshold we will get to before we can start moderating the increase and this will be when we see inflation numbers coming down below 15 per cent, narrowing down to 12 per cent.”
The last time inflation rate was below 15 per cent was 27 months ago, when it was 14.89 per cent in November 2020.
Also, the CBN governor had said that the naira redesign policy would be significant in reducing the rising inflation.
While briefing the diplomatic community on recent monetary policy decisions of the CBN on Tuesday, Emefiele said, “The policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation.”
He added, “The accompanying decline in money supply will thus slow the pace of inflation.”
“Since the naira redesign policy kicked in, cash has been scarce. This has caused untold hardship on many Nigerians in the informal sector and has led to protests in different parts of the country.”
Also, a persistent petrol scarcity towards the end of 2022 and in the early parts of 2023 influenced the price of goods and services in the nation.
Private sector reacts
According to the Lagos Chamber of Commerce and Industry, the new increase in inflation is due to the ripple effect of fuel and cash scarcity.
The Vice President, LCCI, Gabriel Idahosa, stated, “The hike in inflation figures is a ripple effect of fuel scarcity and the attempt to go cashless.”
According to him, business owners who have to transport their products will need to add the extra cost increases in fuel price to the final cost of their products.
He stated that this increase in inflation was reducing the purchasing power of consumers.
He added, “Nigeria is in a vicious circle of hardship. By the end of February, the inflation should reduce once the cash swap programme is rounded off because all our money will be stored in the bank. But by March, we may record an increase in inflation because by that time banks would have started releasing funds to their customers; and then the public will start spending cash like before.”
The Chairman of the Nigerian Association of Small and Medium Enterprises, Prof. Adebayo Adams, stated that the hike in inflation rate was expected, owing to fuel scarcity.
He explained that the forces of demand and supply were at play, thus an increase in the price of goods and services. Adebayo also disclosed that the cost of energy would be spread over food products coupled with the worsening effect of naira scarcity.
Commenting on the rise in inflation, the National Vice- Chairman of the Nigerian Association of Small-Scale Industrialists, Segun Kuti-George, affirmed that the current naira scarcity had played a contributory role.
He said, “People are now paying premiums on money. That is the beginning of it. Somebody told me that he paid N500 to get N2000, and it was even the old notes.
“So, if he is selling something, is he not going to put it on what he is selling? He is going to do that. That is the cause, really. The currency thing is ill-timed, and I hope that somebody somewhere does not have a selfish interest.”
Reacting to the latest figure from the country’s statistics office, economic experts pointed out that sustained inflation would negatively impact businesses and economic activities. According to them, inflation may reduce in February because of disruptions in the circulation of the naira.
A professor of Economics at the Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Sheriffdeen Tella, stated that high prices of food items and energy sources, as well as the Monetary Policy Rate of the CBN were responsible for the increase in inflation.
He said, “The cost of borrowing-interest rate-has also gone up because, at the last meeting of the CBN, the monetary policy rate was raised.
“We also know that the cost of electricity has gone up. All of these have been fuelling the cost of production itself. You have a case where those prices have not come down. You cannot expect the inflation rate to come down, because people cannot sell products below their cost price.
“We know that by the time they are reporting the one for this February, the inflation rate might have come down because there is no demand for goods because of lack of money.”
A financial expert and stockbroker, Rotimi Fakayejo, said the point difference in the inflation figures for December 2022 and January 2023 is negligible. He explained that a 47 base points difference is not significant.
He said if the driver of inflation, fuel scarcity, was not effectively curbed, inflation would increase significantly in February.
He added, “Right now, services are still very much unhindered but for sales of goods, the naira scarcity has really taken a toll on that.
“People selling items cannot exchange goods for money because cash is not available, Nigeria being a cash economy. A single action by the government can bring all of these to the barest minimum and that is if they increase the cash supply within the system and the fuel supply.”
According to the Chief Executive Office of Cowry Asset Management, John Chukwu, the dip in inflation figures for December 2022 was an anomaly.
He stated, “I had predicted that the figure we had in December was not sustainable, that there was going to be a dip in the figure we had in January, and that we should expect higher inflation figures in January.
“Even in the month of February, we are dealing with major disruptions in the economic activities. That will also have some impact by the time the figures are released in March.”
He explained that inflation was reducing the purchasing power of Nigerians, and worsening standard of living.
He added, “We should expect that the demand for goods and services will decline as a result of lower purchasing power or lower disposable income.”
A stockbroker, David Adonri of Highcap Securities, explained that the increase in inflation spelled doom for businesses and households.
He said, “The deteriorating economic situation is disastrous for businesses and households.”
According to the International Monetary Fund, Nigeria’s inflation is driven by elevated international food prices, large parallel market premiums, and monetary policy accommodation.
In its recent article IV consultation summary, the bank advised the CBN to continue to increase its interest rate until inflation falls.
It said, “Directors urged decisive and effective monetary policy tightening to avoid a de-anchoring of inflation expectations.
“Noting recent increases in the policy rate, they encouraged the CBN to stand ready to further increase the policy rate if needed, and to implement additional actions, including fully sterilising central bank financing of fiscal deficits and phasing out credit intervention programs.
According to the World Bank Lead Economist for Nigeria, Alex Sienaert, Nigeria’s minimum wage lost 55 per cent of its value between 2019 and 2022, falling from N30,000 to N19,355.
According to the global bank, five million Nigerians fell into poverty between January and October 2022.