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The underlying causes of Nigeria’s inflation and commodity prices

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Inflation is no stranger to the Nigerian economy. From the independence era to the present; the value of the naira has only been on a steady decline.

Nigeria’s inflation rate spiked to an 11-month record high in May 2022, hitting 17.71% and representing its fourth consecutive monthly rise in the year, with energy and food prices rising to record levels.

The world is currently battling with unprecedented levels of high inflation rates, triggered by the Russia-Ukraine crisis, which has caused a significant hike in energy prices and consequence, a spike in the price of food and services.

While Nigeria’s inflationary pressure cannot be isolated from the global energy crisis, food supply shocks, and global inflationary uptrend, Nigeria seems to be bearing the brunt of the spike in commodity prices.

Nigerian Food Items Market

But what are the underlying causes for this and what can Nigerians expect?

During the pandemic, trillions of dollars were printed and released into the global economy by world central banks in 2020, in order to curb the worst economic effects of the COVID-19 pandemic.

This excess liquidity has greatly helped to drive up inflation because there’s too much-undervalued money in circulation.

The rising global inflation rate means Nigerians will be paying more for imported goods, which would trigger a surge in the demand for forex in the country, consequently leading to further depreciation of the local currency.

Food prices have recorded significant increases in recent times, most of which were attributed to the increase in the cost of transportation, exchange rate volatility, the unrest in the Northeast, and seasonal fluctuations amongst others.

Flour Warehouse

The prices for bread, rice, beans, eggs and poultry have all undergone inflation higher than 10% in the last two months. The size of 200 Naira bread is now smaller than the regular 100 Naira bread and the higher population of the nation depends on bread. This food insecurity is likely to trigger panic buying which in turn fuels price inflation and creates artificial scarcity.

The International Monetary Fund (IMF) has projected Nigeria’s inflation to remain elevated, and high food prices to raise food security concerns in the country.

According to data from the National Bureau of Statistics, the average price of diesel per litre in Nigeria rose by 181% to N671.1 in May 2022, this is expected to be higher in June, considering some outlets are already selling diesel for as high as N850/per litre.

Fuel Scarcity

 Research carried out by Ipledge2nigeria around Shomolu local government areas and Mainland local areas, found that some petrol stations were selling diesel for as high as N950-N1050 per litre.

Also, the average cost of household kerosene increased by 87% to sell for N679.5 in May, while the cost of refilling a 12.5kg cylinder of cooking gas skyrocketed by 103% to sell for an average of N8,726.3. Due to this increase, some households are considering switching to using coal pots for their cooking.

Unless the Nigerian government find solutions to gasoline shortages, high diesel costs, irregular power supply, wasteful election spending and continued Naira weakness, the prices of commodities and services will continue to rise in the coming months.

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