Nigeria’s inflation rate has enjoyed a steady, marginal decline from March 2021 to September 2021. The drop recorded in September 2021 represents the sixth consecutive decline.
However, the decline in inflation rate recorded over the months is not reflected in prices of goods and services at the local market, Mama Emma as well as her customers continue to lament the increasing cost of a bag of rice that she resells over 3 months at Yakasua, Abuja. For instance, a recent report revealed that the price of flour and pasta has increased by 44.83 percent and 40 percent, respectively, from January to date, and currently sells at N21,000/bag and N6,300.
A Dataphyte review of the inflation data revealed that the inflation figure predominantly published is the headline inflation. Headline inflation is only one of the types of inflation and is a measure of the total inflation within an economy, including commodities such as food and energy prices.
What is Headline Inflation
Simply put, headline inflation measures the rate of change in the Consumer Price Index (CPI). When there is an increase in headline inflation it means the rate at which prices have gone up has increased and vice versa.
A fall in headline inflation does not mean that prices have gone down, it in fact means prices are increasing just at a rate that is lesser than the last time inflation was measured.
So, Nigeria’s decrease in inflation rate for 5 consecutive months essentially means that the prices are increasing less quicker.
Imagine that in December you bought a bag of rice at N30,000 instead of the N28,000 it sold at in November (7.1% increase), but in January you bought the same bag of rice at 30,500 (1.6% increase) and in February you bought the same bag for (30,700) which is a 0.7% increase. Although the price of a bag of rice has increased between November and February, the rate at which it increased has actually gone down.
This is how to think about headline inflation and this is the inflation figure that has reduced for 5 consecutive months according to NBS.
Consumer Price Index, which is used to determine headline inflation measures the price of a basket of consumer goods and services that is representative of overall consumer purchases in urban areas.
The headline inflation fell from 17.93% in May to 17.01% in August and subsequently to 16.63% in September. The difference between the August and September figures represents a 0.38% decline which is the highest in the five-month period.
The National Bureau of Statistics data on inflation shows that there was a total of 1.16% decline in the headline inflation from April to September. A 0.05% decline was recorded in April. Subsequent month declines were 0.19 in May, 0.18 in June. 0.37 in July and 0.37 in August.
Food Prices are on The Increase
Despite the fall in inflation, there was an increase in food inflation according to the National Bureau of Statistics data. The data revealed that the rise in food inflation in September was caused by increases in prices of oils and fats, bread and cereals, food products, fish, coffee, tea and cocoa, potatoes, yam and other tubers, milk, cheese and egg.
Food inflation is simply a general increase in the prices of goods and services and this inflation is what Abdul feels when the price of his favourite cereal goes from N2500 to N4500 in 3 months. It is so because food inflation is actually on the rise in Nigeria.
The reasons for the inflationary trough may not be far fetched. The sharp and continuous decline of the value of the naira has increased the cost of imported items like food, raw materials and machinery. More so, the concerns about the scarcity of dollars have resulted in speculative product hoarding which leads to artificial scarcity and an attendant increase in the prices of the produce.
Mr Temitope Laniran, an Economist, has said there is no quick fix and solutions cannot be short term. In his comments, he suggests that structural inflation is the lens through which Nigeria’s inflation challenges should be viewed and it should shape interventions.
According to Mr Laniran “mere increase and/or reduction of interest rates would not suffice because for example, factors like insecurity drive up food inflation and that must be dealt with. He also said Nigeria needs to be more productive as a country.” He further explained that the more productive we are, the less demand for foreign products. “Where supply is more than demand, prices will go down.” And markets will be less susceptible to foreign exchange fluctuations.