According to a new analysis by Fitch Solutions, most Nigerians can no longer afford substantial expenditures on discretionary or non-essential products and services since inflation has continued to erode their purchasing power.
“Nigeria 2022 Consumer Outlook: Increased Inflation Will Weigh On Consumer Spending,” says the article. Real household spending is expected to expand by 3.6 percent in 2022, down from 3.7 percent in 2021, according to the world’s biggest market and credit intelligence business. Discretionary expenditure refers to items like amusement and entertainment that people buy when they have enough money left over after paying their essential bills like rent and electricity.
According to a research by THISDAY, the consumer price index, which monitors the rate of increase in the price of goods and services, increased last month due to increases in food and energy prices.
The National Bureau of Statistics (NBS) announced on Monday that the country’s urban inflation rate for April 2022 was 17.35 percent year over year, while the rural inflation rate was 16.32 percent.
Nigerians have continued to grumble as the naira’s value depreciates and the cost of basic products and services continues to rise.
“We highlight that Nigeria’s high inflation poses a risk to our consumer spending forecast in 2022, as it will reduce consumer purchasing power, limiting spending to necessities,” it said.
Despite the currency’s depreciation and associated inflation, total household spending in nominal terms is expected to reach N150.9 billion in 2022, up from N128.5 billion in 2021.
Furthermore, growing oil output is expected to help private final consumption expand by 3.5 percent (in real terms) in 2022, matching the predicted growth of 3.5 percent in 2021.
However, continuing currency shortages and weak productivity development in the agricultural sector, which employs over 35% of the workforce, will preclude a faster increase, according to the analysis.
Inflationary pressures have been building in numerous countries around the world since the beginning of 2021, as base effects, higher commodity prices, and supply-chain issues generate localized shortages.
“The crisis between Ukraine and Russia has had a substantial impact on global supply prices of essential commodities like oil and gas, fertilizer, wheat, corn, and barley.”
Increases in commodity prices are already trickling through to higher consumer costs, and this trend will continue throughout the year.
“We believe that rising consumer price inflation is a critical risk to consumer spending in 2022,” the report stated, “since it has the potential to erode buying power and move spending away from discretionary spending.”
Consumer price inflation in Nigeria had been drifting lower in recent months until rebounding to 16.82 percent in April, exacerbated by rising commodity prices and the weaker naira, which has raised the cost of imported consumer items.
“Food inflation in Nigeria was 17.2% y-o-y in March 2022, owing to price rises in bread and cereals, potatoes, yam and other tubers, fish, meat, and oils and fats.
“Our country risk team expects consumer price inflation in Nigeria to average 17.2% in 2022, slightly higher than the y-o-y average of 17.0% in 2021. Consumer spending power will be harmed by continuously rising inflation through 2022, according to Fitch.
It claimed that supply chain challenges and bottlenecks caused consumer goods shortages, which led to supply-side inflation as a result of the Russia-Ukraine conflict.
“Fitch Solutions anticipates the worldwide semiconductor shortfall will persist…, putting pressure on the supply of a variety of consumer goods,” the company stated.
The conflict between Ukraine and Russia, according to the business, is putting substantial supply strain on essential commodities, driving up final market prices across a range of consumer categories.
The World Bank forecast earlier this year that Nigeria would have one of the highest inflation rates in the world by 2022, with rising prices reducing the welfare of Nigerian households.
“By 2022, Nigeria is anticipated to have one of the highest inflation rates in the world, and the fifth highest in Sub-Saharan Africa,” the report added.
High inflation, according to the international financial institution, stymies the country’s efforts to revive its economy and erodes the purchasing power of the most vulnerable households.
“Nigeria’s economic recovery is being hampered by high inflation, which is eroding the purchasing power of the most vulnerable people. Rising prices will continue to erode the welfare of Nigerian households in the absence of inflation-control measures, it added.
According to the report, this might push 8 million Nigerians into poverty, disrupting consumption, investment, and saving decisions, among other things.
