Has Nigeria won the inflation battle but lost the war on prices?
There is a question that is becoming increasingly difficult for Nigerian households to reconcile with the official economic numbers: if inflation is falling, why does almost everything still feel expensive? The question is not unreasonable. Nigeria’s headline inflation rate has fallen substantially from the exceptionally high levels recorded during the worst phase of the cost-of-living […]
Nigeria appears to have curbed its inflation rate, but many households are still grappling with high prices. According to recent statistics, the country's headline inflation rate fell to 15.39 percent in August 2021, down from 15.43 percent in July 2021 and significantly lower than the 25 percent level observed a year earlier. The cost of living in Nigeria remains a pressing concern for households, despite the easing inflation.
This discrepancy between falling inflation rates and persistently high prices has sparked a debate on whether Nigeria has truly won the inflation battle or has merely lost the war on prices. Falling inflation does not necessarily mean falling prices, as inflation measures the rate at which prices are changing, while the price level measures where those prices stand.
For instance, if the inflation rate falls from 25 percent to 15 percent, prices have not decreased by 10 percent, but rather continue to rise, albeit more slowly. This can be illustrated with a simple example: if a household's monthly food bill increased from N100,000 to N180,000, even if food inflation falls, the household would still need either food prices to decline, household income to rise, or productivity and competition to improve to recover its lost purchasing power.
Nigeria's economic situation requires addressing two issues: first, to stop the acceleration in prices, and second, to make the economy capable of producing goods and services more cheaply, through productivity improvements. The Central Bank of Nigeria's decision to cut interest rates is a step towards stabilising the economy, but it cannot reduce the accumulated price of essential goods like rice, bus journeys, rents, or school fees.
Thus, Nigeria faces a more complex economic task than simply reducing inflation; it needs to enhance productivity to improve the standard of living for households.
Written by urgent.news from Daily Trust's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
