When basic necessities needed for the survival of the common man in Nigeria become less affordable, then the country is really in a crisis. This is what defines Nigeria currently. The general increase of in prices of goods and services without corresponding increase in income levels, which economists call inflation, is worsening the already precarious state of the Nigerian economy.
Report by the National Bureau of Statistics (NBS), shows total rise in prices within the economy, including commodities such as food and energy prices, rose to 12.4% year-on-year, highest in 24 months. During this period, businesses suffered supply chain disruptions and subdued demand as major fallouts of the covid-19 pandemic.
Wholesale price index of essential food items, measured by food inflation, rose to 15%. Food, as we know, is the primary need that every individual seeks to meet. Despite the subdued demand for goods due to lockdown measures, food prices have remained sticky, moving upwards as supply disruptions take its toll on businesses.
According to Yemi Osinbajo, Vice president, due to the covid-19 pandemic, higher inflation rate will only make life more miserable for people as it decreases their purchasing power amid low or no income.
It is important to note that higher inflation means higher cost of living for households and will discourage private investments and savings.
For businesses, consistent rise in price levels will mean lower sales, especially for non-essential items, as consumers would rather focus the little they have on essential items such as food. Nigerian businesses will also struggle to raise capital for expansion in an inflationary economic environment as banks will be less willing to offer long term financing for capital formation and growth.
Nigeria’s rising inflation rate also poses a risk to the government’s ability to implement its budget due to high and uncertain cost of inputs.
Finally, high inflation levels will always discourage foreign inflow of funds.
Business Day, 10 July, 2020
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