Nigeria's Economy Heats Up As Inflation Rises to 12.82%

Proshare

Monday, August 17, 2020/ 07:00PM/ Adesola Borokinni. Proshare Research /Image Credit: NBS


Proshare Nigeria Pvt. Ltd.


Key Highlights

  • Nigeria inflation increased by 12.82% (Y-o-Y) in July 2020
  • Urban inflation increased by 13.40% (Y-o-Y)
  • Rural inflation increased by 11.49% (Y-o-Y)
  • The composite food index rose by 15.48% (Y-o-Y)
  • The rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam, and other tubers, meat, fruits, oils and fats, and fish
  • Core inflation, which excludes the prices of volatile agricultural produce stood at 10.10% down by 0.03%.
  • The highest increases in core inflation were recorded in prices of medical services, passenger transport by air, pharmaceutical products, hospital services, passenger transport by road, maintenance and repair of personal transport equipment, paramedical services, and vehicle spare parts.


Nigeria's inflation rate went up as data released by the Nigerian Bureau of Statistics (NBS) showed that the domestic inflation rate rose to 12.82% in July 2020 from 12.56% in June 2020, the highest rate recorded in the year. The global spread of the coronavirus harmed the domestic economy (see Chart 1).


Chart 1: Nigeria's Inflation Rate (%)

Proshare Nigeria Pvt. Ltd.

Source: NBS, Proshare Research


Proshare Nigeria Pvt. Ltd.


The Angry Twins of Inflation and Unemployment

The continuous rise in the inflation rate (12.82%) coupled with a high domestic unemployment rate of 27.1% recorded in Q2 2020 indicates a rise in the misery of the average Nigerian. The "misery index" is an economic indicator that determines how the average citizen is doing economically and it is calculated by adding the seasonally adjusted unemployment rate to the annual inflation rate. Nigeria's higher rate of unemployment and the worsening level of inflation creates both economic and social cost for the country.


The average Nigerian who bears the main burden of the rise in inflation has witnessed a fall in real purchasing power for the 13th consecutive month, as there has been an increase in essential commodities such as the prices of bread and cereals, potatoes, yam, and other tubers, meat, fruits, oils and fats, and fish. To further worsen the consumers standard of living there was also increases in essential services required for increased productivity e.g. there was a rise in medical services, passenger transport by air, pharmaceutical products, hospital services, passenger transport by road, maintenance and repair of personal transport equipment, paramedical services, and vehicle spare parts.


Proshare Nigeria Pvt. Ltd.


A Bridge Over Supply Gaps

Recently released NBS data on inflation and unemployment shows that Nigeria is in the grip of a condition economist call "stagflation", a situation where a country faces slow output growth and high inflation. Disruptions to global supply chains have spurred fresh advocacy for self-sufficiency and industrialization. A major reason for the steady rise in both core inflation and food inflation is the huge supply gaps in the economy. The Nigerian economy is heavily reliant on imports and has failed over the years to take advantage of its huge market size to develop a robust domestic network of manufacturing businesses that provide vertical production linkages (see Illustration 1).


Illustration 1: A Bitter Battle with Stagflation

Proshare Nigeria Pvt. Ltd.



Despite efforts to improve productivity and enhance self-sufficiency, none of the public policies has been able to improve manufacturing growth in the economy as Nigeria's manufacturing sector remains characterized by high import content, shrinking capacity utilization, high cost of production, low value-added, declining output growth, low employment generation and inadequate linkage with other economic sectors.


Nigeria could take a cue from the Asian Tigers who industrialized their economies through grunt work and the force of fiscal discipline and budgetary design. Analysts note that every crisis creates threats and opportunities. COVID-19 may provide Nigeria with an opportunity to evaluate economic policies and strategically position the country to take advantage of them. The country's focus may strategically position it to be the industrialization Mecca of Africa; the next factory of the continent. Its focus on manufacturing will help bridge the supply gap, encourage both backward and forward integration, reduce reliance on imports, increase net FX, increase productivity, boost GDP growth, and generate more employment in the economy.


Proshare Nigeria Pvt. Ltd.


Welcoming The Tough Times

There are tough times ahead as Nigeria's inflation rate may likely continue to rise if the coronavirus does not abate. A constant spread locally could further heighten the pressure on inadequate medical services and pharmaceutical products making it more expensive and difficult to access.  Furthermore, a continuous rise in the number of cases might force the government to impose another lockdown which might limit agricultural production and worsen the food inflation rate. Nigeria's rising inflation may equally taper down, given the slowdown in the global spread of the virus, and if social distancing measures are strictly followed and the virus curve flattens.


Policymakers are expected to face a quandary that may require unconventional policies to rejig the economy. Fiscal and monetary state agents may need to pay more attention to policies that would boost production and productivity to help insulate the domestic economy from external shocks and ease the burden on citizens in the advent of a future crisis.


Proshare Nigeria Pvt. Ltd.


Related News

1.      Headline Inflation Increases By 12.82% YoY In July 2020; 0.26% Higher Than June 2020 Rate

2.     Inflation Spikes Amid Rising Coronavirus Cases; Understanding The Numbers

3.     Headline Inflation Increases By 12.56% YoY In June 2020; 0.16% Higher Than May 2020 Rate

4.     Headline Inflation to Increase to 12.55%, Monthly Inflation to Dip in June 2020

5.     Headline Inflation Inched Up By 0.06% As Monthly Inflation Spikes

6.     Headline Inflation Increases By 12.40% YoY In May 2020; 0.06% Higher Than April 2020 Rate

7.     Annual Inflation to Increase Again Towards 12.50% as Monthly Inflation Jumps to 15.73%

8.     Inflationary Pressure, Weakening Pockets

9.     Headline Inflation Increases By 12.34% YoY In April 2020; 0.08% Higher Than March 2020 Rate

10.  April 2020 Headline Inflation Will Cross 13.0% - FDC

11.   Headline Inflation Increases By 12.26% YoY In March 2020; 0.06% Higher Than February 2020 Rate

12.  Nigeria's Economy Under Strain As Inflation Rate Rises

13.  Headline Inflation Increases By 12.20% YoY In February 2020; 0.07% Higher Than January 2020 Rate

14.  Headline Inflation Rate to Increase to 12.37% in February 2020 from 12.13% Reported in January 2020

15.  Inflation to Spike Again to 12.30%

16.  Headline Inflation Crosses The 12% Threshold

17.  Electricity Tariff Hike Could Awaken The "Sleeping Core Giant"

18.  Headline Inflation Increases By 12.13% YoY In January 2020; 0.15% Higher Than December 2019 Rate

19.  Inflation Will Cross the 12% Threshold; Pace of Increase to Slow Significantly

20. Headline Inflation Creeps Up To 11.98% In December 2019

21.  Headline Inflation Increases By 11.98% YoY In December 2019; 0.13% Higher Than November 2019 Rate

22. Headline Inflation Projected to Increase by 0.25% to 12.10% in December 2019

23. Inflationary Pressure, Impacting Wallets

24. Why is Inflation increasing?

25. The Nigerian Economy And Prospects in 2020

26. Inflation - What Goes Up Will Go Up Again

27. Headline Inflation Increases By 11.85% YoY In November 2019; 0.24% Higher Than October 2019 Rate

28. Inflation, Rolling With The Punches

29. Headline Inflation Up Again, Puts The MPC On The Spot

30. Headline Inflation Increases By 11.61% YoY In October 2019; 0.36% Higher Than September 2019 Rate

31.  Inflation Rate To Tick Up By 0.08% In October 2019

32. Inflation Succumbs to Border Closure and Money Supply Growth - Spikes to 11.24%

33. Headline Inflation Increases By 11.24% YoY In September 2019; 0.22% Higher Than August 2019 Rate

34. Unlocking Liquidity in Nigeria - Ayo Teriba

35. Foreign Direct Investment To Africa Remained Steady In 2018

36. Inflation Set to Buck its Declining Trend


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP