Nigeria’s headline inflation rate increased from 21.34 percent in December 2022 to 21.82 percent in January 2023, according to data released by the National Bureau of Statistics on Wednesday.
This represents 0.47 percent increase in January 2023.
January inflation was majorly driven by food costs, which rose to 24.32 percent from 23.75 percent reported in December 2022.
However, on a year-on-year basis, the headline inflation rate was 6.22 percent points higher than the inflation rate recorded in January 2022, which was 15.60 percent. This shows that the headline inflation rate (year-on-year basis) increased significantly in January 2023 compared to January 2022.
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Food inflation impact
The NBS data show that items responsible for the increase in headline inflation index were: Bread, cereal, vegetables, meat, potatoes, yam, tubers; and actual imputed rent. The prices of these items jacked up in January 2023. By implication, the extremely poor people in Nigeria are falling into deeper poverty and can’t afford food.
Data further show that the prices of bread and cereal increased by 21.67 percent, as actual and Imputed rent rose by 7.74 percent. Prices of potatoes, yam, and tuber jacked up by 6.06 percent. Also, the price of vegetables rose by 5.44 percent while that of meat increased by 4.78 percent.
The January 2023 Consumer Price Index is the highest in 10 years, according to an analysis of the 12-month average change percentage.
CBN remains hawkish
The Central Bank of Nigeria has remained hawkish in raising interest rates since mid-2022 to rein in inflation. The CBN has raised interest rates since from 11.5 percent in May 2022 to 17.5 percent in January 2023.
A Professor of Economics at Covenant University, Ogun State, Jonathan Aremu, said the decision of CBN’s Monetary Policy Committee was a reflection of an economic theory that the quantity of money in circulation must reflect the volume of production and that of trade/transactions, noting that the CBN must understand current realities before raising rates.
Inflation amid cash crunch
Inflation is rising amid the worsening cash crunch and fuel scarcity in Africa’s biggest economy.
Fuel queues characterise major cities in Nigeria, with marketers selling between N300 and N500 per litre when available.
In the same vein, several automated teller machines are empty while cash-strapped point-of-sale agents are winding up.
The scarcity of naira notes and fuel has worsened the cost of living, hurting the purchasing power of consumers already facing inflationary pressures, according to analysts.
Since the naira redesign policy took effect on December 15 2022, Nigerians have battled to access cash. Prices have skyrocketed with several micro and small businesses struggling to accept electronic transfers. Electronic transfer failures are commonplace with rural traders most affected.
An Abuja-based school counsellor, Kofoworola Opeifa, narrated the challenges she had been facing. She said the scarcity of the naira had made it challenging for her to buy foodstuffs from local markets.
“The market women who sell food items do not accept transfers. They want their customers to pay cash to them without delay,” she said.
“I spend extra money on the POS charges. I was charged N1,500 for N5000 on Monday. I couldn’t resist because I needed the money badly since I was going to get something important that required cash.”
An Ogun-based teacher, Segun Alowonle, said the new naira notes were scarce, and that had attracted extra charges from the POS vendors. He said people now queued at banks just to access their money.
“Money is not in circulation. These days, you need to hustle for money to survive. The POS merchants add extra charges to the fee because the money isn’t accessible to them. We now buy money in the country. Cost of living is high.” he said.
About 133 million Nigerians wallow in multi-dimensional poverty, according to the recent NBS data.
In a statement made available to Dataphyte, Director-General, Lagos Chamber of Commerce and Industry, Chinyere Almona, said the base factors that might continue to drive the major economic indicators in the country included the rising inflation rate, tight monetary policies, an unstable currency, foreign exchange scarcity, debt burden, currency management, food supply disruptions, and exchange rate volatility.
Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the CBN’s cash swap policy could put N100 trillion component of the national GDP at risk.
“Two critical sectors are particularly vulnerable – trade/commerce and agriculture. The crippling of business transactions at the distributive trade end amid the currency swap crisis would not only undermine the trade and agricultural sectors but would have a knock-on effect on manufacturing value chain and the services sectors. This is because whatever is produced have to sold,” he said.
He explained that the trading end of the chain had been disrupted by the currency swap crisis, noting that the trade sector contributes about 14 percent of GDP valued at an estimated N35 trillion, while agricultural sector adds 25 percent, which is about N62 trillion.
“Most of the activities in these sectors are either in the rural areas or in the informal sector of the economy. These are the sectors that have been driving the resilience of the Nigerian economy amid numerous domestic and global headwinds. Any policy measure that would negatively disrupt these sectors should be avoided. For an economy that is tottering on the brink, the capacity to absorb shocks and disruptions is severely constrained.”
He said with 133 million Nigerians in poverty, inflicting additional hardship on the citizens would be unfair, insensitive and inconsiderate, adding that the reality was that more than half of the currency in the hands of citizens were still old notes.