Navigating Nigeria’s Naira Nightmare

Inflation is an economic concept that refers to the rate at which the general level of prices for goods and services is rising and subsequently, the purchasing power is falling.

Increase in the Rate of Inflation in Nigeria

Inflation in Nigeria has been on the rise for about 6 years straight. Nigeria’s annual inflation rate climbed further to 29.9% in January 2024, up from 28.9 in December, 2023 and above market forecasts of 29.5%. Food inflation, which accounts for the bulk of Nigeria’s inflation rose from 33.9% in December to 35.4% in January according to Trading Economics.

The contributions of the following items on a class basis to the increase in the headline index are; Yam tuber, palm oil, beans and sliced bread according to the National Bureau of Statistics.

Selected Food Price Watch (August 2021 – August 2022)

There was a 32.12% increase in the average price of 1kg tuber of yam from August 2021 to August 2022. The average price of the yam tuber was estimated to have increased from N305.48 to N403.63. Palm oil was never left alone as there was a 34.08% increase in the average price of a bottle of palm oil from August 2021 to August 2022. The average price of a bottle of palm oil was estimated to have increased from N668.71 to N896.63. Also, beans had a role to play in the increase. The average price of 1kg of beans was estimated to have increased from N457.98 to N517.23 which shows an increase of 12.94%. Finally, sliced bread also increased from N366.69 in August 2021 to N488.14 in August 2022 which shows an increase of 33.12% according to National Bureau Statistics.

Naira’s Valuation to US Dollars

Since 1986, naira’s relationship with US dollar has been very erratic and has been on the increase since 1986. Why is this so? Dependence on imported finished products, supply of dollars into the economy has been declining while the demand remains unchanged, overreliance on oil exports, inability to diversify the economy and persistent inflation erodes Naira’s purchasing power which contributes significantly to depreciation.

With the data insight above, it is imperative that the Nigerian government diversifies its economic base. To accomplish this goal, the government must create an environment that strongly encourages the growth of export-oriented manufacturing by imposing a ban on some imported products. Furthermore, the government must take immediate action to lower or raise prices where necessary. The stability of the nation’s exchange rate must be a top priority for the government, and it must take all necessary measures to regulate and maintain it.