Nigeria recorded an annual headline inflation rate of 18.85% in 2022, in what was a remarkable year ravaged by various economic headwinds. According to the research website, nairalitics, Nigeria experienced its worst rate of inflation in the last twenty-one years.
The last time Nigeria had an annual inflation rate above 18.85% was in 2001, when the Consumer Price Index rose by an average of 18.87%.
The African giant, which has just recovered from the covid-19 pandemic and the ripple effect of the #EndSARS movement in 2020, faced further difficulties due to Russia’s invasion of Ukraine in February 2022, followed by inflation problems.
A cursory look at the monthly trend showed that Nigeria’s inflation rate broke a 17-year high of 21.47% in November, largely attributed to the global energy crisis, exchange rate depreciation, food crisis and the increase in the cost of transportation, among others.
Effect on the poverty level: A trend analysis of the data gives an indication of how inflation in Nigeria has trended significantly higher over the past three years, increasing by more than 700 basis points between 2019 and 2022.
- Rising inflationary pressure in the county pushed more Nigerians below the poverty line, as the purchasing power of citizens was severely eroded, without a corresponding increase in income level.
- The World Bank estimated that more than 5 million Nigerians will be pushed into poverty in 2022, bringing the total number to 95 million by the end of the year.
- On the other hand, statistics from the National Bureau of Statistics (NBS) revealed that around 133 million were multidimensionally poor in 2022, representing 63% of the population.
Nigeria’s inflation rate exceeded 18% despite an estimated projection of 11.95% by the federal government. Considering the massive jump, it is imperative to consider the factors that shaped Nigeria’s inflation quagmire movement in 2022.
Russia-Ukraine War: The year was set to be one for economic recovery and resilience, at least, according to President Muhammadu Buhari’s budget during his presentation to the joint session of the National Assembly on October 8, 2020.
- However, in February 2022, Vladimir Putin, the president of Russia, ordered his troops to invade Ukraine, setting the course for a historic global price shock. This led to rising energy costs across the globe, including Nigeria.
- The price of diesel increased from less than N300 per liter at the beginning of the year to more than N800, causing transport costs to rise.
- Foods like durum wheat soon became significantly expensive, as Russia and Ukraine are the main players in exporting the agricultural product.
Floods/food crisis: One of the unusual events of 2022 included flooding in food-producing areas of the country.
- A report by the National Emergency Management Agency (NEMA) revealed that 27 states in Nigeria suffered from flooding caused by heavy rains and the release of water from the Lagdo dam in neighboring Cameroon.
- Nigeria suffered a food supply crisis during this period, causing prices to rise dramatically, against the backdrop of destroyed farmland and agricultural products.
- Food inflation during the year averaged 20.82% compared to the 12-month moving average of 20.49% registered the previous year.
Exchange rate volatility: Nigeria’s black market exchange rate depreciated 23.1% in 2022 dramatically, trading as high as N900/$1 over the year before settling at N735/$1.
- The greater volatility in the exchange rate market was due to the greater demand for greenbacks, due to the Japa syndrome and the need to invest and save in foreign currency.
- In addition, the lack of foreign exchange in the Nigerian economy put pressure on the exchange rate for most of the year, despite interventions by the CBN to ensure the stability of the local currency.
- In the official market, the exchange rate also depreciated by 5.7% during the year to close at N461.5/$1.
Money supply: Nigeria’s money supply increased to an all-time high of N51.8 trillion in November 2022, resulting in an increase of N7.97 trillion in the first eleven months of the year.
- According to the CBN, the increase in the money supply and the currency in circulation fueled the rising inflation rate in the country, thanks to the interventions of the main bank to cushion the impact of the pandemic on the economy.
- The CBN data showed that 84% of the total currency in circulation as of November 2022 was outside of bank vaults. And this is believed to have contributed to the rise in Nigeria’s inflation rate.
- Although, the CBN has doled out several policies during the year with the intention of controlling inflation, some of which include raising interest rates by 500 basis points to 16.5%, lowering the OTC maximum withdrawal limit, and redesigning smaller denominations. high, among others.
- Meanwhile, in the last month of the year, the inflation rate moderated for the first time in eleven months, despite the expected increase in spending during the holidays.
Energy crisis/transport cost: After the crisis between Russia and Ukraine, the cost of energy in the global market shot up to unprecedented levels, which affected the cost of landing gasoline and other petroleum products in Nigeria.
- The cost of diesel increased by more than 200%, as it is not a regulated item, while gasoline went from an average of N168/liter to N250 and N400 depending on the location. This led to an increase in transportation costs and a significant increase in the operating costs of companies.
- The increase in diesel prices forced many Nigerian companies to ration their operating periods, in an attempt to minimize their operating cost. Air transport costs also increased following the increase in aviation fuel.
In the meantime: It is worth adding that the fact that 2022 was an electoral year, that is, a year before an election, which is considered historic, at least a certainty that there will be a change of government.
This has also impacted the state of the economy, as Nigerians and investors alike wait to see who wins the next presidential election, which will inevitably determine the direction of the country for the next four years, at least.
Meanwhile, Nigeria is not isolated in the problem of rising inflation rate in 2022, as many other countries suffered a similar fate, with the US, UK, France, Canada, Ghana and Egypt facing unprecedented levels. inflationary pressure.