Understanding the rising cost of living

About a week ago, a corps member’s video went viral, which shows a classic of what continued hike in price does to a Nation. Inflation, on the one hand, has become one of the most pressing economic challenges in Nigeria. With prices of goods and services rising at an alarming rate, many Nigerians are feeling the strain on their household budgets. The cost of living, which includes essential items such as food, transportation, healthcare, and education, is continuously on the rise, squeezing the purchasing power of ordinary citizens. But what exactly is driving this inflationary trend, and how does it impact the economy and the lives of everyday Nigerians? This article will explore the causes of inflation in Nigeria, its effects on the population, and the measures that could be taken to address the crisis.

A. Understanding Inflation and Its Causes

Inflation refers to the general increase in the prices of goods and services over time, leading to a decrease in the purchasing power of money. In Nigeria, inflation has been primarily driven by several factors, each of which has contributed to the rising cost of living:

1. Exchange Rate Volatility

The depreciation of the Nigerian Naira against major foreign currencies, particularly the US Dollar, has been a key factor driving inflation. As the value of the Naira falls, the cost of importing goods and services rises. Since Nigeria is heavily reliant on imports for everything from food to machinery, this results in higher prices for imported goods, which ultimately affects the cost of living for Nigerians. For example, Poultry Farmers import the feeds given to birds, leading to continued increase in the cost of table eggs.

2. Supply Chain Disruptions

Nigeria’s economy has experienced major disruptions in its supply chains, caused by factors such as insecurity, poor infrastructure, and global events like the COVID-19 pandemic. These disruptions have led to scarcity of goods, causing price hikes. For example, transportation costs have risen sharply due to fuel price increases and inadequate road networks, which in turn makes goods more expensive to move across the country. Only yesterday, a video was in circulation of some herdsmen violating a cassava farm.

3. Rising Costs of Raw Materials

Global increases in the prices of raw materials like crude oil and agricultural commodities, have a direct impact on inflation in Nigeria. As the prices of these raw materials rise globally, Nigerian businesses that rely on them for production or trade are forced to pass on these costs to consumers, driving up the prices of goods and services across the board.

4. Monetary Policies

The Central Bank of Nigeria (CBN) has adopted various monetary policies, including increasing interest rates and adjusting money supply, in an attempt to stabilise inflation. However, these measures can also have unintended consequences. For instance, an increase in interest rates can make borrowing more expensive, slowing down economic growth, while injecting more money into the economy can drive prices up.

5. Food Insecurity

Nigeria has long struggled with food security, especially in the wake of persistent insecurity in various regions of the country. Agricultural productivity has been hampered by factors such as farmer-herder clashes, banditry, and flooding, resulting in reduced food production. When there is less food available, prices rise, disproportionately affecting low-income families who rely on affordable staples (the government can step in to stabilise some food prices in this category such as egg and bread – each State can find sustainable ways to keep these prices at an affordable point – “Onje Eko” (Lagos Food), which was once a thing in 2024 has stopped for a while because the approach used in not sustainable).

B. The Effects of Inflation on Nigerians

The impact of high inflation on Nigerians is far-reaching, touching every aspect of daily life. Some of the effects are:

1. Decreased Purchasing Power

About the most immediate and visible effects of inflation is the reduction in purchasing power. As prices rise, the same amount of money buys fewer goods and services. Nigerians, especially those in lower income brackets, find it increasingly difficult to afford basic necessities such as food, healthcare, and transportation. This creates a cycle of poverty, where people are forced to make difficult choices, often prioritising food and shelter over education and healthcare.

2. Higher Cost of Living

Inflation increases the overall cost of living, making it harder for people to maintain their standard of living. Families must allocate a larger portion of their income to basic needs like food and energy, leaving less money for savings, investments, or other discretionary spending. This can contribute to a decrease in the quality of life for many Nigerians (over prolonged periods), as they are unable to afford goods and services that are vital for their well-being.

3. Worsening Poverty Levels

The inflationary crisis exacerbates Nigeria’s already high poverty rate. According to the National Bureau of Statistics, over 40% of Nigerians live below the poverty line. With inflation increasing, the poverty rate is likely to rise, as people’s incomes do not keep pace with the soaring cost of living. This could lead to greater social inequality, with more Nigerians struggling to meet basic needs.

4. Pressure on Businesses

Nigerian businesses, particularly small and medium-sized enterprises (SMEs), are also feeling the brunt of inflation. The rising cost of inputs, from raw materials to fuel, can result in higher production costs. While businesses may be forced to increase prices to remain profitable, they risk alienating customers if they raise prices too much. Moreover, the uncertainty caused by inflation can deter investment and make it more difficult for businesses to plan for the future (SMEs need urgent government intervention).

5. Social Unrest

When inflation reaches unsustainable levels, it can cause social unrest. Citizens may protest against the rising cost of living, as we have seen in some parts of Nigeria. Public discontent can also manifest in strikes, particularly from labor unions demanding higher wages to match the increasing cost of living. Social unrest can further destabilise the economy and make it harder to implement effective solutions to address inflation.

C. Technology Solutions to Combating High Inflation and Rising Cost of Living

While inflation is largely a macroeconomic issue, technology can provide measurable solutions to reduce its effects and help stabilise the economy. Some technology-driven approaches that can assist in combating inflation and reducing the rising cost of living in Nigeria are:

1. E-Commerce and Digital Marketplaces Application: E-commerce platforms like Jumia, Konga, and smaller regional digital marketplaces allow consumers to directly access goods from suppliers and manufacturers, bypassing traditional middlemen. Impact: This can lower costs for consumers and businesses alike by reducing transaction fees, delivery costs, and distribution inefficiencies (Onje Eko should leverage this model to stabilise purchase and distribution of essential food). Additionally, consumers can compare prices across various platforms to find the most affordable options, which helps combat rising costs.

2. Fintech Solutions for Financial Inclusion Application: The expansion of mobile banking, digital wallets, and microloans (e.g., Flutterwave, Currex, and Cowrywise) can help Nigerians better manage their finances during inflationary periods. Impact: By offering easy access to financial tools, fintech companies allow people to save, invest, and borrow at lower rates, improving their financial resilience. Moreover, digital payments and peer-to-peer money transfer systems make daily transactions more efficient and cost-effective, which can help cushion the impact of inflation.

3. Blockchain for Supply Chain Transparency Application: Blockchain technology can be utilised to improve the transparency and traceability of Nigeria’s supply chains. By securely tracking the flow of goods and services, blockchain can help reduce inefficiencies and fraud in the distribution of essential goods. Impact: With a more transparent and efficient supply chain, the cost of goods can be lowered. Blockchain also reduces the likelihood of price manipulation or artificial scarcity, which can drive inflationary pressures, particularly in food and essential goods.

4. Agricultural Technology (AgTech) Application: AgTech innovations, such as precision farming, drone-assisted crop monitoring, and IoT-based smart irrigation systems, can help farmers boost productivity, reduce waste, and increase yields. Impact: These technologies can address the food insecurity issues contributing to inflation. By improving agricultural output and reducing dependency on imports, AgTech solutions can stabilise food prices and ensure a more reliable supply of essential goods at affordable prices.

5. Artificial Intelligence (AI) in Manufacturing Application: AI and automation technologies can streamline production processes, optimise resource management, and reduce labor costs in manufacturing sectors. Impact: Lower manufacturing costs can help reduce the price of goods in the market. By increasing productivity and reducing waste, AI can help businesses maintain profitability while preventing excessive price hikes that contribute to inflation.

6. Digital Currency and Central Bank Digital Currencies (CBDC) Application: The introduction of the e-Naira, Nigeria’s Central Bank Digital Currency (CBDC), allows for more efficient monetary transactions and enhances the management of inflation by improving tracking and controlling money supply. Impact: The e-Naira could offer a more stable currency exchange mechanism, helping to stabilise the Naira and reduce inflationary pressures caused by currency depreciation. It also facilitates cheaper and faster financial transactions, which can reduce business costs and benefit consumers.

7. Online Price Comparison and Consumer Empowerment Platforms Application: Price comparison websites and mobile apps, such as PricePally or PriceChecker, allow consumers to track and compare prices of goods and services across different platforms. Impact: With real-time price tracking, consumers can make more informed purchasing decisions, which can curb excessive price hikes and provide businesses with incentives to keep their prices competitive, reducing inflationary pressures in the market.

8. Technology-Driven Financial Literacy Programs Application: Digital platforms and mobile apps dedicated to financial literacy can help Nigerians better manage their personal finances during periods of high inflation. Platforms like Access Bank’s Smart Money and Zedvance offer budgeting tools and savings programs. Impact: Increased financial literacy enables individuals to manage their spending, savings, and investments more wisely, which can protect their purchasing power even in the face of inflation (State governments should be at the fore of financial literacy campaigns – humans thrive by food and words).

D. Measures to Control Inflation and Mitigate Its Effects

While technology offers promising solutions to alleviate the impact of inflation, it is clear that the government must take a multi-faceted approach to tackle the underlying economic challenges and manage inflationary pressures. A combination of well-designed fiscal policies, strategic investments in infrastructure, and proactive measures to stabilise the exchange rate, improve agricultural productivity, and enhance financial systems are crucial. Here are several important measures the Nigerian government can take to control inflation and mitigate its adverse effects on the population.

1. Strengthening Fiscal Policies: Fiscal policies refer to the government’s approach to managing public finances through taxation, government spending, and borrowing. By adjusting fiscal policies, the government can influence the overall level of demand in the economy, which can help reduce inflation.

Key actions:
• Targeted Government Spending: The Nigerian government can focus on reducing wasteful expenditure and re-directing spending toward high-impact sectors such as infrastructure, health, education, and agriculture. This will stimulate growth in critical sectors without creating excessive inflationary pressure.
• Subsidy Reforms: Inefficient subsidies, particularly on fuel and electricity, contribute to rising inflation. These subsidies are often regressive, benefiting the wealthy more than the poor, and can place a strain on government finances. Gradual subsidy reforms, paired with targeted social support programs for vulnerable populations, would reduce inflationary pressures in the long term.
• Enhancing Tax Revenue Collection: Strengthening Nigeria’s tax collection systems will help the government to increase its revenue without relying on borrowing. Using digital tools to modernise tax collection and expanding the tax base will allow for better public service delivery without stoking inflationary pressures through increased borrowing.

2. Stabilising the Exchange Rate: A stable currency is one of the most important factors in controlling inflation, especially in an economy like Nigeria’s, which relies heavily on imports for essential goods and services. The continued depreciation of the Naira against the US Dollar has contributed in major ways to inflation, particularly in the cost of imported goods.

Key actions:
• Managing Foreign Exchange Reserves: By increasing foreign reserves through better management of the country’s oil revenue and non-oil exports, Nigeria can stabilise the Naira and prevent sharp currency depreciation. A stable exchange rate helps reduce the cost of imports, which will lower the price of goods in the domestic market.
• Diversifying Foreign Exchange Sources: Relying on oil exports as the primary source of foreign exchange exposes Nigeria to global oil price volatility. Encouraging foreign direct investment (FDI), diversifying exports (especially in agriculture and technology), and developing sectors like tourism or manufacturing will provide additional foreign currency to stabilise the exchange rate.
• Improved Forex Policy: The Central Bank of Nigeria (CBN) could introduce more market-driven forex policies that allow for a more transparent and predictable exchange rate regime. This includes improving access to foreign exchange for businesses and individuals to improve confidence in the currency.

3. Improving Agricultural Productivity: Agriculture plays a notable role in Nigeria’s economy, contributing significantly to employment and GDP. However, Nigeria faces major challenges in terms of food production, which contributes to inflationary pressures in food prices. The government can improve agricultural productivity by addressing several crucial areas:

Key actions:
• Investing in Agricultural Technology (AgTech): The government can promote the use of modern farming techniques such as precision farming, smart irrigation, and drone technology to help farmers increase yields and reduce waste. Additionally, supporting the development of local agribusinesses can improve food production and supply, reducing dependency on imports (Government should support farmers already on this path).
• Agricultural Subsidies and Support: Direct subsidies to farmers, along with training (on-the-go) and access to improved seeds and fertilisers, will increase food production. Also, providing farmers with better access to affordable financing and insurance would shield them from risks such as natural disasters and volatile market prices.
• Addressing Food Insecurity and Logistics: Improving the country’s logistics infrastructure for food storage and transportation can help reduce food waste and ensure that food reaches markets faster, preventing shortages and keeping prices stable (a public-private partnership could address this in more sustainable ways – open to discussions on this). Increased security in farming regions is also necessary to prevent conflicts that often disrupt food production and distribution.

4. Investing in Infrastructure: Infrastructure development is important to lowering the cost of doing business and improving the efficiency of goods and services. Poor infrastructure in areas such as roads, electricity, and transportation contributes to high production and distribution costs, which are often passed on to consumers in the form of higher prices.

Key actions:
• Building and Upgrading Transportation Networks: Improving Nigeria’s road and rail systems will help lower transportation costs, making it cheaper to move goods from one region to another. This will lower logistical costs, which are often a significant driver of inflation, particularly in the cost of food and other essential goods.
• Energy Sector Reforms: Nigeria suffers from an unreliable power supply, which increases costs for businesses and households. By investing in energy infrastructure and promoting the use of renewable energy sources, the government can help reduce energy costs for businesses, which will, in turn, reduce inflationary pressures.
• Digital Infrastructure: Expanding access to the internet and mobile technology will promote e-commerce, improve financial inclusion, and facilitate online education. This will also help streamline services and transactions, making them more efficient and less costly, which could lower the cost of living.

5. Improving Financial Systems: A well-functioning financial system is essential for reducing inflation, managing public debt, and ensuring efficient allocation of resources in the economy. Strengthening Nigeria’s financial systems can provide greater access to credit and savings, support business growth, and reduce the pressure on inflation.

Key actions:
• Boosting Financial Inclusion: By promoting access to banking services, particularly in rural and underserved regions, Nigeria can increase the number of people participating in the formal economy. This will also improve access to savings products and microcredit, which will help citizens and businesses weather inflationary pressures more effectively (this plus continued media sensitisation will reduce the toxic nature of our business environment).
• Promoting Digital Payments and Mobile Banking: The rise of fintech solutions, such as mobile wallets and online banking platforms, provides Nigerians with access to affordable, efficient financial services. By facilitating digital payments and remittances, these platforms reduce transaction costs and allow for better money management, which can cushion some of the effects of inflation.
• Government Borrowing and Debt Management: Effective management of public debt and careful borrowing can help prevent inflationary pressures caused by excessive debt accumulation. The government can also explore debt instruments linked to inflation, which could help manage debt payments in periods of high inflation.

6. Promoting Digital Innovation: Nigeria has a vibrant tech ecosystem, and digital innovation can play a jugular role in combating inflation. From fintech to e-commerce and digital agriculture as mentioned above, the use of technology can improve efficiency and reduce costs across various sectors of the economy.

Key actions:
• Supporting Tech Startups: The government can promote an environment that supports innovation and entrepreneurship by providing tax incentives, access to venture capital, and incubators for tech startups. This will drive innovation in sectors like e-commerce, digital finance, logistics, and agriculture, all of which can reduce costs and improve service delivery.
• Using Artificial Intelligence (AI) for Economic Planning: AI can help improve decision-making in the Nigerian economy by predicting trends, managing supply chains, and providing insights for policymakers to create more targeted interventions in times of economic distress. This data-driven approach will help mitigate inflation by creating more accurate forecasts and targeted solutions.

7. Addressing Supply Chain Inefficiencies: Supply chain inefficiencies, particularly in transportation and logistics, are a major contributor to the rising cost of goods in Nigeria. By leveraging technology and improving infrastructure, the government can address these inefficiencies.

Key actions:
• Investing in Smart Logistics: The use of technologies like GPS tracking, route optimisation software, and real-time inventory management can help reduce delays, optimise transportation routes, and prevent stockout. This reduces the costs of goods transportation and minimises the impact of inflation on essential products.
• Streamlining Customs and Border Operations: The Nigerian government can digitise customs and border procedures to make the import and export processes more efficient. This would reduce bottlenecks, accelerate the movement of goods, and lower transaction costs.

Conclusion

Inflation in Nigeria is a complex issue with far-reaching consequences for individuals, businesses, and the overall economy. While its causes are multifaceted, addressing it requires a combination of sound monetary policy, strategic investments in infrastructure and agriculture, and technology-driven solutions. By leveraging technology in sectors such as e-commerce, fintech, agriculture, and supply chain management, Nigeria can reduce the burden of rising costs, improve economic stability, and better the purchasing power of its citizens.

Thank you for the sustained investment in time and attention. Please follow me on Medium: https://medium.com/@roariyo and LinkedIn: https://www.linkedin.com/in/olufemiariyo/ or email me: [email protected].