Nigeria’s inflation rate has been a major talking point for both economic experts and everyday Nigerians. The recent inflation data released by the National Bureau of Statistics (NBS) for July 2024 indicates a slight decrease in the headline inflation rate from 34.19% in June to 33.40% in July. Although this reduction appears promising on paper, the reality at the market tells a different story, with many Nigerians questioning why food prices remain stubbornly high despite the supposed improvement in inflation figures.
The NBS report for July 2024 shows that headline inflation decreased by 0.79% from the previous month. However, when compared to July 2023, where the inflation rate was 24.08%, the current figures still represent a significant increase. This discrepancy has led to confusion and frustration among Nigerians who struggle to reconcile the statistics with the high cost of goods and services in the market.
Food inflation, a key component of the overall inflation rate, also saw a marginal reduction of 0.08% from 2.55% in June to 2.47% in July. According to the NBS, this slight decrease was driven by a slower rate of price increases in items such as tin milk, baby powdered milk, fresh fish, snail, date palm fruit, watermelon, garri, akpu, turkey meat, and minced pork. Despite this, the prices of many staple foods remain unaffordable for the average Nigerian.
Why Are Food Prices Still High?
The persistent high food prices, despite a decrease in the inflation rate, can be attributed to several factors.
1. The Harvest Season and Its Limited Impact
Tope Fasua, Special Adviser to President Tinubu on Economic Affairs, explains that the harvest season has brought some relief to food prices, particularly for items like yam and tomatoes. For example, the price of yams, which was as high as ₦4,000 per tuber, has dropped to between ₦2,000 and ₦2,500. Similarly, a basket of tomatoes that previously cost ₦150,000 has significantly reduced to less than half that price.
However, this reduction is not uniform across all food items, and the impact is not as widespread as one might expect. The harvest season affects only certain types of produce, and the benefits are often short-lived. Moreover, the reduction in prices is not always sufficient to offset the overall increase in the cost of living, especially when considering other factors such as transportation, which remains high due to persistent fuel price hikes.
2. Consumer Bargaining Power
Another critical factor influencing food prices is consumer bargaining power. Fasua highlights that consumers’ ability to negotiate prices plays a role in whether they can afford expensive items. In an economy where disposable income is dwindling, many consumers are unable to bargain effectively, leading to sustained high prices in the market.
This situation is exacerbated by the fact that sellers are also facing increased costs in procuring and transporting goods, which they pass on to consumers. As a result, even though the inflation rate has decreased slightly, the price of food items remains high because the cost structure for sellers has not improved significantly.
3. Price Stickiness
Rotus Odiri, a popular business journalist, offers another perspective on the situation. He explains that in Nigeria, prices tend to rise rapidly but fall very slowly—a phenomenon known as “price stickiness.” When prices go up, they do so like a rocket, but when they come down, they descend like a feather. This means that even though the inflation rate has slowed down, the decrease in prices is not immediately noticeable.
This slow rate of price reduction can be frustrating for consumers, who may not see any real difference in their day-to-day expenses despite the lower inflation figures. The gradual nature of price adjustments means that it could take several months of sustained lower inflation before consumers start to feel any significant relief.
It’s important to understand that the inflation rate is calculated based on a broad basket of goods and services—740 in total, according to the NBS. This basket includes not only food items but also other essential goods and services such as electronics, stationery, clothing, healthcare, utilities, and personal grooming products. Every month, over 10,000 informants across Nigeria provide price data that contribute to the Consumer Price Index (CPI), which in turn determines the inflation rate.
Given this wide range of items, a small reduction in food prices may not be sufficient to cause a noticeable drop in the overall inflation rate. Furthermore, the rate of inflation in urban areas between June and July 2024 remained relatively stable, decreasing by only 0.003%, while rural areas saw a slightly larger decrease of 0.07%. These minor changes are unlikely to be felt by the average consumer, contributing to the perception that prices are not truly decreasing.
The Road Ahead: What Can Be Done?
The slight reduction in inflation for July 2024, while a positive sign, is only the beginning. To see a meaningful impact on food prices and the cost of living, these reductions need to be sustained and supported by broader economic policies.
1. Sustained Policy Measures
Tope Fasua emphasizes that the government’s efforts to manage inflation are starting to show results, but these measures need to be sustained over time. If Nigeria can achieve a good harvest season and continue to implement policies that stabilize the economy, there is hope that prices will eventually come down. However, this process will take time, and patience will be required from both consumers and policymakers.
2. Addressing Supply Chain Challenges
One of the key areas that need attention is the supply chain. High transportation costs, driven by fuel price increases, are a significant factor keeping food prices high. Addressing these challenges, whether through subsidies, improved infrastructure, or other means, could help reduce the cost of getting goods to market, which would, in turn, lower prices for consumers.
3. Enhancing Consumer Awareness and Bargaining Power
Educating consumers about their rights and how to effectively bargain for better prices could also play a role in managing inflation. While individual bargaining power may seem small, collective action can lead to more significant changes in market dynamics. Additionally, increased awareness of inflation trends and how they impact everyday purchases can help consumers make more informed decisions.
The recent reduction in Nigeria’s inflation rate is a step in the right direction, but it is not yet enough to bring down food prices significantly. The complex interplay of factors such as the harvest season, consumer bargaining power, and price stickiness means that it will take time before Nigerians see a real decrease in the cost of living. Sustained policy efforts and a focus on addressing the root causes of high prices are essential to ensure that the benefits of lower inflation are felt by all Nigerians.
