Inflating away our miserly economic gains
A large part of the problem is the consequence of policy failures.
…it is only fair to assume that: the onus of our poor economy on the vulnerable segments of our population will continue to increase; and the riot of young unemployed persons that we see across our cities might soon become a melee. The Federal Government…should worry less about how adverse the numbers look because a large part of the problem is the consequence of policy failures.
Most people often set aside data because of the complexity of wrapping their heads round it. Governments, on the other hand, would rather not deal with the implications for policy, of poor data on the economy’s performance. In the matter of domestic inflation, both of these objections are quite easily met. To understand what is afoot, just take a walk along any of our streets. And it doesn’t matter which town you pick. But there is no longer any doubt that poverty walks across Nigeria with reckless abandon. It is as much evident in the riot of young people loitering at major intersections. As it is in the increasingly elevated levels of violence, from muggings all the way through communal attacks, to wholesale, industrial, kidnappings, plaguing our diverse communities.
Rising prices matter, both as cause and consequence of these. One effect of the pandemic has been the cull of jobs in contact sensitive sectors of the economy. Where those with a paying job would have been expected to see silver linings in this cloud, rising prices continue to wipe out their purchasing power. In calculating domestic inflation, the National Bureau of Statistics (NBS) tries to capture the all-in cost to the man on the street, of rising prices. As a result, food, on which people spend an increasingly large share of their earnings as one descends the income ladder, is a disproportionately large share of the official basket for computing domestic price movements.
Because the rate at which inflation rose all through last year was pretty steep (around 100 basis points on average higher than the comparable period in 2019), most analysts had called a moderation in price rises this year. In other words, inflation would have had to rise faster than it did last year if the headline numbers were to remain elevated.
All of which is why the northward trend of domestic prices which begun in September 2019 matters a great deal. At an average of a little under 18 per cent annually over the last five months, the headline number is clearly unsupportable if the official goal of significantly reducing the incidence of poverty is to be met. With the food component even higher (averaging a little over 22 per cent over the same period), one can only imagine how burdened the poor and vulnerable segments of our population have been of late. Should we, therefore, not welcome the moderation in prices over the last two months? According to the NBS, annual headline inflation last month (17.93 per cent) fell by 0.19 percentage points from April’s 18.12 per cent. In April, the headline trajectory bucked an 18-month trend, falling to 18.12 per cent from 18.17 per cent in March.
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Because the rate at which inflation rose all through last year was pretty steep (around 100 basis points on average higher than the comparable period in 2019), most analysts had called a moderation in price rises this year. In other words, inflation would have had to rise faster than it did last year if the headline numbers were to remain elevated. In the event, the Federal Government’s decision to open the country’s land borders, and the working out of the pressure from the January 2020 increase in VAT rates, may have helped slow down the year-on-year increase.
Ostensibly we are neck-deep in borrowing because of the Federal Government’s urgent need to strengthen public infrastructure. Yet, the pertinent question is whether the benefits from the infrastructure spend compensates for the costs over the next 20 years, of servicing and ultimately paying down the loans we have incurred.
That said, the worsening security situation may continue to tip the scales against food prices, as farmers abandon the tending of their crops for safer havens. Conversely, the Federal Government’s attempt to reform pricing in the downstream section of the oil and gas sector may further push prices up later this year. Nonetheless, we ought to take the moderating inflation rate narrative with a pinch of salt. While compared with last year’s levels, the headline inflation rate has slowed for two months back-to-back, on a monthly basis, yet the picture is less salutary. Over the April number, inflation appeared to have gone up in May ― for the headline gauge from 0.97 per cent to 1.01 per cent; for the core gauge, from 0.99 per cent to 1.24 per cent; and for the food gauge, from 0.99 per cent to 1.05 per cent.
On this evidence, it is only fair to assume that: the onus of our poor economy on the vulnerable segments of our population will continue to increase; and the riot of young unemployed persons that we see across our cities might soon become a melee. The Federal Government, on the other hand, should worry less about how adverse the numbers look because a large part of the problem is the consequence of policy failures. Take rising public debts. Ostensibly we are neck-deep in borrowing because of the Federal Government’s urgent need to strengthen public infrastructure. Yet, the pertinent question is whether the benefits from the infrastructure spend compensates for the costs over the next 20 years, of servicing and ultimately paying down the loans we have incurred. Put differently, and to take but just one example, do we think that the productivity levels from the rail infrastructure currently in place will be enough to pay the debt incurred on it?
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
