The National Bureau of Statistics (NBS) reports that inflation grew steadily from 15.6% in January to 21.5% in November of last year.
According to all predictions, inflation will rise in December, as it has every year since 2018. The increased spending across the country over the Christmas season is frequently the cause of the larger spike in December.
Cost-push inflation is thought to be the main cause of inflation, according to research on the topic. An increase in the price of energy globally causes price increases.
The justification for this is that a rise in energy costs unavoidably results in an increase in the cost of production because the majority of global manufacturing is powered by energy sourced from fossil fuels. As a result, the cost of everything, including food, goes up (a wide range of materials from fertilizers to plastics are also a product of the oil and gas industry).
Although correlation does not always imply causality, the findings are consistent with this theory. Brent crude’s price surpassed $100 per barrel for the first time in 2022 on February 28 and reached a high of $127.98 per barrel on March 8.
Since Nigeria’s inflation rate increased by nearly five full percentage points between February and August, Brent prices won’t drop below the US$100 threshold until August.
Russia-Ukraine conflict: Russia invaded the surrounding Ukraine in February 2022. The majority of the Global North nations swiftly imposed economic sanctions on the nation as a result. This is closely related to the rise in energy prices around the world;
In the past five years, Russia has become the second-largest oil exporter in the world behind Saudi Arabia. Even more of a connection exists between this and Nigeria.
Nigeria is a significant, if underperforming, oil producer, but for the past few years, it has done very little to no refining.
Refined petroleum and wheat, two key components of Nigeria’s economy, are largely imported from Russia. With that supply source cut off, the cost of food and fuel increased, pushing up inflation rates.
Nigeria also imports fertilizers from Russia in addition to a large quantity of seafood, including blue whiting and mackerel. Nigeria was set to lose a Russian import partner worth close to $2 billion, according to a February Nairametrics analysis. As a result, according to NBS data, food inflation increased by six percentage points between February and August.
The CBN’s response: According to the neoclassical school of economics, demand-pull and money supply are the two main factors that create inflation.
According to the latter, consumers spend more when there is more money floating around the economy. Prices rise more rapidly when consumer spending increases.
The former is described using a different strategy: economic growth causes consumer spending to increase and demand to rise, which in turn causes supply to fall and prices to climb.
The Central Bank appears to favor this view as it moves to combat inflation by boosting the monetary policy rate (MPR). Under Godwin Emefiele’s direction, the apex bank has attempted to combat inflation by increasing the MPR, or interest rate, in an effort to decrease the money supply. This means that between January and December, MPR increased by five percentage points.
This strategy’s viability is still up in the air because it hasn’t yet produced the intended outcomes. It is tenable to claim that, rather than rising demand, the price increase was brought on by supply constraints and increases in production costs.
After all, the ground-breaking Statistics Bureau report from October 2022 revealed that more than 134 million Nigerians suffer from many forms of poverty. This immediately contradicts the notion of an expanding economy and disproves the necessity of tightening the money supply.