Report: Growing Inflation Eroding Purchasing Power of Nigerians

*Consumer spending now mostly limited to household essentials
Emmanuel Addeh in Abuja

Most Nigerians are no longer be able to afford major expenditure on discretionary or non-essential goods and services as inflation has continued to take its toll on their purchasing power, a new report by Fitch Solutions has shown.

Tagged: “Nigeria 2022 Consumer Outlook: Elevated Inflation Will Weigh On Consumer Spending,” the leading global market and credit intelligence firm made a forecast that real household spending will grow by 3.6 per cent in 2022, a deceleration from the estimated 3.7 per cent growth in 2021.

Discretionary spending refers to items such as recreation and entertainment, that consumers purchase when they have enough income left after paying the necessary expenses such as rent and utilities.

A THISDAY review indicated that last month, the consumer price index, which measures the rate of increase in the price of goods and services, jumped amid increases recorded in food and energy prices.

Last Monday, the National Bureau of Statistics (NBS) pegged the country’s urban inflation rate for April 2022 at 17.35 per cent (year-on-year) while the rural inflation rate was 16.32 per cent.
Nigerians have continued to complain as the value of the naira continues to depreciate and the cost of essential goods and services keep skyrocketing.

“We note that Nigeria’s elevated inflation is a risk to our outlook for consumer spending in 2022 as it will negatively impact consumer purchasing power, limiting spending to essentials,” it stated.

However, it noted that despite the erosion of value of the currency and associated inflation, total household spending in nominal terms will reach N150.9 billion in 2022, increasing from N128.5 billion in 2021.

In addition, it said that private final consumption is forecast to grow by 3.5 per cent (in real terms) in 2022, consistent with the estimated growth of 3.5 per cent in 2021, aided by rising oil production.

But the report noted that continued forex shortages and slow productivity growth in the agricultural sector, which it said employs almost 35 per cent of the workforce, will prevent a sharper acceleration.

“Since the start of 2021, inflationary pressures have been rising in many countries globally, as base effects, higher commodity prices and supply-chain challenges create localised shortages.

“The Ukraine-Russia conflict has also significantly impacted the global supply prices of key commodities, such as oil and gas, fertiliser, wheat, corn and barley.

“The commodity price increases are already feeding through into higher consumer prices and will continue to do so over the year.

“We believe that rising consumer price inflation is a key risk to consumer spending over 2022, as it has the potential to erode purchasing power and shift spending away from discretionary spending,” it pointed out.

Nigeria’s consumer price inflation had been trending lower in recent months before elevating in April to 16.82 per cent, worsened by rising commodity prices and the weakening naira which has increased the cost of imported consumer goods.

“In March 2022, Nigeria’s food inflation was 17.2 per cent y-o-y due to increases in the price of bread and cereals, potatoes, yam and other tubers, fish, meat and oils and fats.

“Our country risk team forecasts Nigeria’s consumer price inflation to average 17.2 per cent in 2022, slightly higher than the 2021 average of 17.0 per cent y-o-y. The persistently high inflation will continue to negatively impact consumer spending power over 2022,” Fitch noted.

On the back of the Russia-Ukraine war, it stated that supply chain issues and bottlenecks resulted in consumer goods shortages, feeding through into supply-side inflation.

“ Fitch Solutions believes the global semiconductor shortage will continue…, putting pressure on the supply of several consumer goods,” it stressed.

According to the firm, the Ukraine-Russia conflict is placing significant supply pressures on key commodities, pushing up final market prices across a spectrum of consumer categories.

Earlier in the year, the World Bank predicted that Nigeria may have one of the highest inflation rates globally in 2022, with increasing prices diminishing the welfare of Nigerian households.

“In 2022, Nigeria is expected to have one of the highest inflation rates in the world and the seventh highest in Sub-Saharan Africa,” it said in its Nigeria Development Update.

According to the global financial institution, high inflation hampers the country’s attempt to achieve economic recovery and erodes the purchasing power of most vulnerable households.

“High inflation is frustrating Nigeria’s economic recovery and eroding the purchasing power of the most vulnerable households. In the absence of measures to contain inflation, rising prices will continue to diminish the welfare of Nigerian households,” it said.

It projected that this could push 8 million Nigerians into poverty, with the possible disruption of consumption, investment and saving decisions, among other consequences.