Experts Explain Why Nigeria’s Declining Inflation Rate Does Not Reflect Market Realities

Nigeria’s latest inflation report which recorded a decline in July 2024 is generating mixed reactions.

This is as Nigerians have decried that the figure does not reflect everyday market realities.

Recall that on Thursday last week, the National Bureau of Statistics consumers price Index and Inflation data for July indicated that the country’s headline and food inflation declined to 33.40 percent and 39.53 percent from 34.14 percent and 40.87 percent, respectively, in June 2024.

This represents a 0.79 percent decline in core inflation compared to the 34.19 percent recorded in June 2024. Like core inflation, Nigeria’s food inflation dropped on a month-on-month basis to 2.47 percent in July from 2.55 percent.

The development sent a shockwave in the economy because this is the first time Nigeria’s inflation has recorded a decline since December 2022 when it stood at 21.34 percent.

The development comes after a series of monetary and fiscal interventions by the government.

Recall that the Central Bank Nigeria in its latest Monetary Policy Committee meeting further raised the interest rate to 26.75 percent to tackle inflation.

Similarly, the government recently began the commencement of zero import duty waiver for staple foods such as husked brown rice, grain, sorghum, millet, maize, wheat and beans as measures to tackle rising food prices.

Meanwhile, according to a market survey by DAILY POST, a 50-kilogram bag of rice (local rice) stood between N78,000 to N85,000, a mudu of beans (white and red), N2,800 and N3,400, garri between N1300 to N1600, Dustin Basket Tomatoes and Pepper, N6000 and N9000, 1kg of frozen chicken, N4,500, Indomie super pack, N12,500, 1 liter red and groundnut oil N1200 and N1800, five big tubers of yam, N10,000 to N16,000.

“Apart from yam prices that came down because this is harvest season, every other food item continued to witness price increase”, a trader in Dutse Market, Mrs. Caroline Usman mentioned in an interview

Reacting to the latest inflation figure, financial experts have explained why there is a disconnect between the National Bureau of Statistics’ inflation data and market realities.

They made this known in different interviews on Monday.

the Executive Director of the Centre for the Promotion of Private Enterprise, Muda Yusuf clarified that a decrease in inflation doesn’t imply a price reduction, rather it means a decrease in the rate of increase.

According to him, the Nigerian government must deal decisively with the instability in the foreign exchange market, energy cost, trade cost and insecurity to bring down inflation.

“First, we need to be clear about the concept of inflation. A decrease in inflation doesn’t imply a price reduction but rather a decrease in the rate of increase.

“For instance, if there is a price increase of N10 in July on a particular product and in June, it is N5, that is a decrease in Inflation.

“Inflation is about measuring the rate of price increase. You talk about price reduction when referring to deflation.

“There is this general misconception among many people that once they hear that there is a decline in inflation, they feel that what the report says is that the price of goods and services has reduced.

“It is the nature of prices to come up while some come down. Inflation is about the general price level.

“There is a big array of products in the inflation basket. Of course, the one that has the most weight is food inflation. To reduce the inflationary pressures we need to examine the key drivers.

“The three major drivers are the exchange rate situation; if we can strengthen the exchange rate, and energy cost, which has driven the cost of production, operation and logistics, prices will come down.

“From the cost-push perspective, energy cost is very important. If we bring down the cost of energy, moderation is possible. We can achieve this if you reduce import dependence on fuel.

“If we can refine it domestically, if the government sells crude to Dangote Refinery and other refineries in Naira, costs will be the driver of inflation.

“Lastly, insecurity; the food crisis has been largely attributed to food insecurity”,

On his part, a financial analyst and the Chief Executive Officer of SD & D Capital Management, Gbolade Idakolo said despite the decline in inflation, Nigeria’s economic environment was still very tense.

He noted that the government should come up with policies that impact the ordinary citizen directly resulting in a reduction in cost-of-living.

“The NBS data showing core and food inflation reducing in July 2024 is partly due to aggressive policies of the government that are gradually taking shape.

“However, seasonal factors affected a decline in food inflation which saw the prices of major food items and perishable crops reduced, e.g tomatoes, Irish potatoes, etc.

“The CBN tightening of monetary measures is seriously hurting businesses and causing manufacturers and SMEs to groan under high interest rates from banks.

“The import waiver on some selected food items as approved will take effect in August 2024 and it’s left to be seen how far it will go to reduce the cost of food items.

“The fiscal and monetary policies of the Federal government have not attacked the high cost of living, with fuel prices rising amid scarcity and prices of goods and services on the high side.

“The government needs to listen to Nigerians to facilitate policies that will be directly impactful to ordinary Nigerians.

“The economic environment is still very tense and measures should be put in place to make government policies bearable for the people”, he told DAILY POST.

Also, Prof Godwin Oyedokun, a don at Lead City University in Ibadan said the disconnect between NBS data and everyday consumer experiences underscored the complexities of accurate economic data interpretation.

“The recent NBS data indicating a month-on-month decline in both core and food inflation in Nigeria, while seemingly positive, conflicts starkly with the everyday experiences of consumers.

“This disconnect underscores the complexities of accurately measuring and interpreting economic indicators, particularly in a context marked by significant price volatility.

“Way Forward: To effectively address the rising cost of living and combat inflation, the government should consider the following: Improving Data Collection: Enhance the NBS’s methodology to better reflect the price changes experienced by consumers.

“Targeted Interventions: Implement policies that directly address supply-side constraints in key sectors, such as agriculture and manufacturing.

“Social Safety Nets: Provide targeted support to vulnerable populations affected by rising prices.

“Exchange Rate Management: Stabilize the exchange rate to reduce imported inflation.

“Structural Reforms: Implement long-term reforms to improve the business environment, reduce corruption, enhance productivity and adopt a multi-faceted approach that combines monetary policy, fiscal measures, and structural reforms.

“The government can effectively address the challenges posed by inflation and improve the living standards of Nigerians”, he stated.

On his part, Okechukwu Unegbu, a former president of the Chartered Institute of Bankers of Nigeria, CIBN, said contrary to NBS’s data, Nigeria’s core and food inflation is above 36 percent and 40 percent, respectively.

“We keep our inflation records, which is different from what NBS reports. The NBS data doesn’t tally with the reality of prices in the market.

“The core inflation is about 36 percent, while that of food is over 40 percent.

“I don’t think the NBS data reflects reality. The current monetary and fiscal measures will not solve the problem except if there is massive production in the country and security is tackled”,