Why are the prices of goods and services rising?

inflation-696x474On the website of the National Bureau of Statistics is the Consumer Price Index (CPI) and Inflation report for December 2016. The CPI which measures inflation increased by 18.55% (year-on-year) in December 2016. This is 0.07 percent points higher from the rate recorded in November 2016 (18.48 percent).

Let us admit it. January is a difficult month in Nigeria. People usually spend a lot of money during the festive period. Historically, Prices of goods and services are known to go up in January. Coupled with the present day recession, the average Nigerian has little at his or her disposal to spend. Inflation is at an all-time high with devastating effect on the economy, purchasing power of the Naira and the standard of living for the average Nigerian. Putting it mildly, there is so much anxiety in the land which has resulted in the rising cost of goods and services. Is this anxiety solely an aftermath of an economy in recession? Why have goods and services risen so much this period?

This can be traceable to two major factors. The anxiety caused by the Federal Government in passing the 2017 budget coupled with sketchy details about the implementation of the 2016 budget has led to a lot of speculations. The flexible income earners (Businessmen, Industrialists, Investors, traders and speculators) have increasingly become anxious and have begun to take steps to remain in business. As harsh as it may sound, the greed of some of these individuals have also brought untold hardship to Nigerians.

This is not the first time a budget’s passage will be delayed. However, let us be true to ourselves. There is an increased lack of confidence in the government. Many people feel the government has not done enough to assuage the sufferings of the masses. The groaning of Nigerians on social media platforms attest to this. This has nothing to do with political inclinations or association. The diatribe towards the government is evident even on the streets. Many feel the government is not moved by the sufferings of the masses. You can’t convince people that the government is responsive to their plight when they see government officials and senators allocate posh cars to themselves and spend lavishly on foreign trips.

Many will argue that increased demand for goods lead to price increase. This is an economic theory that has existed for many years. I am not a savvy economist or a Noble laureate, but some economic policies do not work in Nigeria. The prices of many goods never reduce in Nigeria irrespective of the prevailing conditions.

I visited a popular phone outlet in December in Port Harcourt, Rivers state. I wanted to purchase a smart phone. I was not sure of the pros and cons of using the phone that caught my attention, so I took out time to go and research on it. On returning to the same phone outlet in January, the price of the phone had increased by 10%! I tried to engage the staff in the outlet and I came to the conclusion that they have not received any new consignment of phones since my last visit. Why the increase? This was definitely not caused by increase in demand. (Only one of the five phones in stock has been sold since my last visit according to the staff!)They simply increased the prices based on speculation. As we all know in Nigeria, any threat by NUPENG and PENGASSAN to embark on an industrial action is a ‘welcome’ development to unscrupulous oil marketers. They cash in on this; hoard the product and sell the petroleum products above the official pump price.

Greed on the part of some highly placed individuals has a part to play in the wide gap between the official CBN and the black market rates. Individuals get forex at the CBN rate, hoard it and make quick profit, amounting to at least 50 to 100 naira on a single dollar. This ought not to be so.

The ban or reduced importation of foreign rice has not made local rice cheaper in anyway. Local rice is very pricey and it is becoming increasingly difficult for the average Nigerian to purchase it. A market survey I conducted independently shows that for a 50kg bag of rice, the average price goes for 19,000 to 20,000 naira while the foreign rice sells for 21,000 to 22,000 naira. Despite the fixed price of LAKE rice (Kudos to the Lagos and Kebbi state governments), people still attempted to sell it above the approved price. I am not sure many people have ever purchased kerosene at the official pump price of 135 naira. This is not the doing of the FG. The infractions from these sales don’t go back to the government but private pockets.

People are trying to fend for themselves by increasing the prices of goods and services because they believe the government cannot come to their rescue.  People who sell things will tell you that the prices of things are up because of foreign exchange. Whether this is true or not, they also have to buy things that have to do with forex. Almost everything has to do with something that has a foreign product or input.

The people on the lower rung of the recession –induced poverty ladder are those who don’t have anyone to shift the rising cost of goods and services to. These are the fixed income earners which translate to the poor and middle class. Their income remains stagnant with a lower purchasing value. The flexible income earners exploit situations like this and increase their prices because they believe the government can’t help them at the moment. There is an unjustified transfer of income between the fixed income earners and flexible income earners.

The Federal Government has less money at its disposal. Our revenue sources have nose-dived and the Federal government have to look inwards (We still need to borrow money to stimulate the economy; It is inevitable!). ‘The grow Nigeria, buy Nigeria’ campaign has been on the increase since the Nigerian economy went into recession. Been an import dependent economy, we have to change our preferences for foreign goods. Do we have close-up substitutes for goods we import? We do to a large extent. We have alternatives but public perception is still a lot to worry about.

Only nine out of the 36 states produce oil in Nigeria. How many of the other states are doing something worthwhile to diversify their resources aside getting monthly federal allocation and oil earnings? Abrupt banning of products without making adequate provision to make them available in Nigeria leaves a lot to be desired. Banning cars import through land borders when there’s little local production is a policy which was not well thought out.

Inflation must be curtailed at all cost or else, it will destroy Nigeria. Savvy Economists know that merely borrowing from external sources and increasing salaries is bad economics. There has to be an aggressive drive towards goods production. This will keep prices stable. The Federal Government should do a lot more to defend Nigerians from flexible income earners especially in services that the government has no little or no input in.

Alfred is an independent researcher.  He can be reached on twitter – @samoalfred  

This article was first published here https://thewillnigeria.com/news/opinion-why-are-the-prices-of-goods-and-services-rising/

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