Worsening food inflation and poverty levels

The National Bureau of Statistics (NBS) recently released data about Nigeria’s inflation level and worsening poverty, confirming the warning from the Bretton Woods Institutions about the country’s inflation problem, citing it as a key driver for the rising number of poor people in the country. While many have blamed the Russia-Ukraine crisis partially for the present inflation trigger, what has been equally ignored are the lingering structural and security challenges driving prices of food and basic services beyond the reach of the poor and the almost non-existent middle class. The painful rise in prices of everything, including mainstays like food and oil, is both an economic and political problem. The fact remains that the present administration has done a poor job at managing inflation and everyone is paying the price. As election nears, the inflation outlook is even grimmer, as prices outpace earnings, pushing more into poverty.

Nigeria’s inflation rate jumped to a 17-year high of 21.09 per cent in October 2022, representing 0.32 per cent increase from 20.77 per cent recorded in September, according to the NBS, raising concerns for Nigerians already battling with weak household incomes and import pass-through costs. There are concerns that the country’s inflation trend may not have reached its peak considering that triggers like intermittent fuel scarcity witnessed during the review period, stubbornly high gas and energy prices, lingering currency pressures and build-up of higher naira liquidity as the campaign season starts, are yet to be addressed.

Painfully, many do not seem to agree with the position of NBS, which they said needed to do more to convince Nigerians, especially those who rely on their data for research and critical decision-making, that the figures are not doctored to achieve a predetermined objective. Contrary to the position of NBS, households across the country are trapped in a persistently rising cost of living. Prices of basic food items increase at a double-digit percentage every other week.

Even the World Bank at the beginning of the year, said Nigeria may have one of the highest inflation rates globally in 2022, with increasing prices diminishing the welfare of Nigerian households. “In 2022, Nigeria is expected to have one of the highest inflation rates in the world and the seventh highest in sub-Saharan Africa,” it said. With the recent floods, Yuletide and election spending, the outlook for inflation does not look good.

On June 12, 2021, President Muhammadu Buhari, in his address to the nation, claimed that his government had lifted 10 million people out of poverty; and there is a record of that historic accomplishment. Seven months down the line, the World Bank, on February 4, 2022, in its National Development Update report 2021, stated that “Inflation shock alone pushed about eight million more Nigerians below the poverty line in 2020 and 2021.” According to the bank, “Double-digit inflation rates are depressing economic activities and exacerbating poverty. Rising food prices are eroding household purchasing power.”

Today, latest data from the NBS confirmed more Nigerians slipping into poverty, having disclosed that 133 million Nigerians are multi-dimensionally poor. The World Bank, which said that poverty reduction stagnated since 2015 under the Buhari administration, had projected that the number of poor Nigerians would hit 95.1 million in 2022.

Today’s reality presents a worse situation than envisaged. World Bank economists, Jonathan Lain and Jakob Engel, said in a blogpost on the bank’s website that rising inflation, persistent population growth, the COVID-19 pandemic and the war in Ukraine are threatening Nigeria’s poverty reduction aspiration.

While spending has been largely focused on food and essential commodities, food inflation has equally made it challenging for many households whose incomes have not witnessed any improvement. Indeed, the disparity between income and inflation has widened, mounting pressure on how much can be defined as disposable spending. Ideally, if salaries increased at the same rate as inflation, there would be no hardships. Unfortunately, inflation is not an across-the-board price increase. Prices of different commodities increase at different rates at different times, affecting different sections of the population. For many Nigerians in recent times, access to food and consumer items is getting difficult by the day.

Unlike in advanced nations like the U.S., Japan where some level of inflation is tolerable to stimulate economic activities, Nigeria’s inflationary trend is detrimental to its growth due to its structural deficiency, logistics problems, insecurity, among others. Indeed, many of the factors that have fueled Nigeria’s high inflation are not showing any signs of receding. The most recent being higher energy prices, especially diesel, as a result of rise in oil prices.

Already, manufacturers, banks, logistics and services industry, including hotels, apartments and estates, are feeling the pressure from rising energy costs as they have to spend more on diesel to power their generators. While banks had staggered their operations in lieu of the present realities, real estate service providers are adjusting clauses relating to exclusivity on electricity provision. For the manufacturing sector, the burden of higher energy prices can only be passed onto consumers if they have to remain a going concern. Diesel costs should naturally not be a burden for many, except for those in the logistics sector. However, the nation remains underserved by the unstable and low capacity national grid. With less than 4,000MW from the national grid, Nigerians are left to generate their own energy.

With the lingering war in Ukraine and winter season, matters are going quickly from bad to horrid, triggered by higher energy costs. For many households across the world, rising inflation poses a significant challenge. Higher prices are eroding the value of real wages and savings, leaving households poorer. But these effects are not felt equally: Low- and middle-income households tend to be more vulnerable to high inflation than wealthier households. That reflects the composition of their income, assets and consumption baskets. Inflation may affect the very poorest households living below the global poverty line less directly, however. Already, Nigerians are beginning to witness a trend where more people are borrowing to survive, with quick loan apps taking advantage of the circumstances.

Governments have been turning to subsidies to dampen the impact on households. In some cases, subsidies can be an effective transitional tool to ameliorate the impact of shocks. But they tend to be left in place for too long, leading invariably to adverse effects. Subsidies can quickly detract from spending in infrastructure, health and education. Nigeria’s subsidy payment is estimated to cost the nation at least N4 trillion this year. For a poor nation, this is a costly price to pay for years of inefficiencies and corruption.

To address inflation, it is time to address structural issues and triggers. Notably is insecurity. The environment needs to be safe for any productive enterprise. Government is failing in its duty to protect lives and properties. It is high time farmers felt safe to go back to the farms. Also, trade policies should be aligned to encourage backward integration. No country produces all the food it consumes. The Buhari administration should understand that production will not happen by fiat or by closing the borders. The deregulated diesel market has shown what may become of petrol when subsidy is removed. Beyond the narrative of N5,000 to the vulnerable, it is important to note that calculating inflation indexes for different income groups provides better information on inflation actually experienced by the poor and should inform the design of social safety nets. Trust must be earned!

Besides, it is unlikely that the current inflationary surge will subside quickly; economic history suggests otherwise. Indeed, there are concerns that the country’s inflation trend may not have reached its peak considering that triggers like intermittent fuel scarcity witnessed during the review period, stubbornly high gas and energy prices, lingering currency pressures and build-up of higher naira liquidity as the campaign season starts, are yet to be addressed.

With electioneering gaining momentum, dirty money will expectedly chase the electorates, therefore worsening inflation. Bringing down the rate of inflation will have a significant political impact on the 2023 presidential election but the administration would have to get lucky to achieve this result in time for the campaigns, considering how hard it has become to sustain daily living in Nigeria, even though the NBS data downplay the magnitude.