Salary earners recount ordeals amid cost of living crisis

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Situation not palatable – Rewane

Uba Group

The sustained rise in inflation will continue to leave Nigerians gasping for breath as disposable income shrinks and the cost of living worsens. Consequently, the rate of poverty will remain elevated as the standards of living fall. In addition, investment inflow into Africa’s largest economy, which has been on the decline in the last few years, will continue to shrink as rising inflation dampens investor confidence in the country. BAMIDELE FAMOOFO writes.

Ajose Gandonu, a resident of Mowe in Ogun State, works with a private sector organisation in Lagos State to be able to earn a living and fend for his family. But according to him, life has not been the same again in the last few years as the cost of living has risen astronomically due to inflation.

“First, the cost of transportation is killing. I now pay more than double the amount I used to spend on transportation to be able to go to work and return home. Second, the cost of maintaining my home has also doubled. My wife gets about N30, 000 per month for family upkeep but that has gone up to N50, 000 now, yet it is not enough. House rent has also risen. Generally, life is becoming very unbearable as my major source of income, which is salary, has remained stagnant,” he lamented while expressing his frustration to The Point.

Another respondent, Mrs. Jumoke Adelakun, was visibly downcast talking to The Point about how the economy had dealt a huge blow on her home.

“Let me tell you my brother, even the seemingly little things that did not bother me and my family before now are becoming very big issues. Can you imagine not being able to refill your gas to be able to cook for your family? That is the situation I’m confronted with now and for me, it is causing me depression,” she said.

The Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, was able to shed some light on the prevailing economic situation in Africa’s most populous country.

He said the sustained rise in inflation would continue to leave Nigerians gasping for breath as disposable income shrinks and the cost of living worsens.

Rewane noted that the consequence of the rising inflation on the nation was that the rate of poverty would remain elevated as the standards of living fall. But that is not the end of the story, as he also pointed out that investment inflow into Nigeria, which had been on the decline in the last few years, would continue to shrink as rising inflation dampens investor confidence due to prevalent negative real return on investment in the country.

He explained that falling consumer demand brought on by increasing inflationary pressures would dampen business sales and profits while their cost of operation would edge higher due to rising energy costs.

“This would further be worsened by the lingering issue of forex scarcity, which raises the cost of raw materials importation. The increased business costs and lower profit margins would also constrain business activities and, in turn, weigh on the country’s growth rate,” he noted.

The rising rate of inflation is not also friendly to the nation’s investment climate as investors move in droves to more rewarding investment climates, especially where returns are denominated in Dollar.

According to a report published by FDC in September, the current rate of inflation further widens the negative real return on investment to 6.52 per cent per annum, which dampens investor confidence and deters investment inflows into the country, further weighing on economic growth.

Meanwhile, financial experts expect that the monetary policy committee will remain committed to its price stability mandate, and to hike the interest rate as inflation remains elevated. The Monetary Policy Committee however did not disappoint the expectations of the financial pundits as it announced an increment of lending rate to 15.5 per cent at its bi-monthly meeting held in Abuja last week.

“Can you imagine not being able to refill your gas to be able to cook for your family? That is the situation I’m confronted with now and for me, it is causing me depression”

CBN intervention
The Governor of the Central Bank of Nigeria, Godwin Emefiele, who acknowledged the destructive impacts of rising inflation to the nation’s economy, emphasized the urgent need to control it.

“The MPC was concerned that within a four-month period, inflation had accelerated aggressively by 280 basis points from 17.71 per cent in May 2022 to 20.52 per cent in August 2022. The Committee was thus of the view that given the primacy of its price and monetary stability mandate, it was expedient that significant focus must be given to taming inflation,” Emefiele disclosed.

Emefiele and the monetary policy team were therefore of the view that a hold or loosening option was not in consideration at the meeting. This is also because a loosening will further widen the negative real interest rate gap and worsen the financial market conditions, as savings mobilization and investment inflows would decline further. It was also of the view that with the aggressive policy normalization in advanced economies, loosening the stance of policy would result in a sharp depreciation of exchange rate, leading to further hike in capital outflows.

“As regards a hold decision, this would mean a continuous deterioration in real earnings of fixed income earners and the livelihood of middle- and low-income households. The MPC noted that a tight policy stance would help consolidate the impact of the last two policy rate hikes, which is already reflecting in the slowing growth rate of money supply in the economy. It also felt that an aggressive rate hike would slow capital outflows and likely attract capital inflows and appreciate the naira,” Emefiele noted.

“CBN"

The CBN said last week that its Monetary Policy Committee’s decision to increase the Monetary Policy Rate was to control rising inflation.

Director, Monetary Policy Department, CBN, Hassan Mahmoud, said this on Wednesday at a post-MPC briefing tagged: “Unveiling Facts behind the Figures’’.

The MPC, at its 287th meeting on Tuesday, had increased the MPR by 150 basis points, from 14 per cent to 15.5 per cent.

The MPR is the baseline interest rate in an economy on which other interest rates within that economy are built on.

According to Mahmoud, the MPC got to a point where stringent measures have to be taken to control inflation.

He said that the committee took cognisance of global as well as local economic issues in arriving at its policy decisions.

“We raised the MPR because it is necessary to do so. The quantity of money in the system was too much for the economy to absorb,’’ he said.

He said that monetary policy tools were meant to deal with short term risks, adding that the idea was to make the cost of funds expensive to drive down inflation.

According to Mahmoud, the stimuluses that governments across the world provided for their citizens during COVID-19 increased the ability of people to spend, thereby, creating challenges with global supply.

“A lot of households and small businesses were injected with stimuluses; the U.S did two trillion dollars, Nigeria did about five trillion naira, these increased the ability of people to spend.

“But the supply side could not meet up with the demand because that volume of injection was far more than the regular intake for those economies, this made prices go up,’’ he said.

He also blamed the Russian-Ukraine war, as well as the resurgence of COVID-19 in China as responsible for the rise in global inflationary trend.

“That region accounts for more than 50 per cent of global commodity supply and 38 per cent of global oil and gas supply.

“The war resulted in some shortages which made prices go up.

“Then the COVID-19 lockdown in China. The country is the largest importer of commodities across the globe,’’ he noted.

Speaking on the various economic intervention initiatives by the apex bank and the prospect of recouping the funds, Director, Development Finance Department, CBN, Yusuf Yila, said about N9trillion had been invested in the various development finance interventions.

He, however, said that all the money would be recovered.

According to Yila, N9.3 trillion has been invested in various development finance interventions, out of which N3.7 trillion has been repaid.

“Most of the loans are still under moratorium, especially those in manufacturing. Manufacturing forms the largest part of our portfolio, about 31 per cent,’’ he said.

He, however, said that one of the best performing interventions was the Commercial Agriculture Credit Scheme, where out of the N800 billion that was lent out, about N700 billion had been repaid.

Yila said that through the flagship agriculture intervention scheme, the Anchor Borrowers Programme, N1 trillion had been lent out to small holder farmers, while about N400 billion had so far been recovered.

According to him, the department will restrict intervention to critical sectors like the SMEs and the electricity sector for now.

Speaking on the depreciation of the Naira, Director, Trade and Exchange Department, Mrs. Ozoemena Nnaji, said the apex bank was taking steps to firm up the currency.

Nnaji said that demand for foreign exchange outstripped supply currency, adding that the CBN was doing a lot to mop up supply.

“One of the steps is the Naira for dollar remittance drive, which has resulted in a huge increase in diaspora remittances.

“There is also the RT200 bringing in forex. Repatriation has gone up from $20 million in the first quarter to about $600 million in the second quarter.

“In this third quarter we are looking at more than $1 billion of repatriated inflows,’’ she said.

Inflation tussle
The National Bureau of Statistics in September disclosed that an upswing in inflation continued in August as headline inflation accelerated for the seventh consecutive month to hit a 17-year high at 20.52 per cent in August.

This represents an increase of 0.88 per cent compared to 19.64 per cent in July. The uptick in inflation was largely driven by higher energy and food prices, especially staples like bread, cereal, yam, meat, and oil. This is in addition to the rise in imported inflation, partly from a weaker naira in the forex market.

The naira has depreciated by 25.09 per cent YTD against the dollar, resulting in a spike in import costs. Conversely, month-on-month inflation reduced slightly to 1.77 per cent from 1.82 per cent due to harvest seasonality effects. A further breakdown of the inflation rate showed that all inflation sub-indices moved in tandem with the headline inflation.

Annual food inflation increased by 1.1 per cent to 23.12 per cent in August and annual core inflation trended up to 17.20 per cent from 16.26 per cent in July, reflecting the sustained rise in energy prices.

Weakening Naira
Data from Hanke’s Currency Watch List reveals that the Naira ranks as the 11th worst-performing currency against the US dollar in the list of 19 worst-performing currencies in the world. It ranks the fourth worst in Africa, ahead of the Ghana Cedi, which ranked 13th globally and 3rd in Africa.

The data further reveals that the Naira has lost 48.87 per cent of its value against the US dollar as at September 2, 2022, compared to its value in January 2020.

The Naira has further weakened to its current value at N712/$ largely due to falling external reserves and limited forex supply relative to the demand for forex. This is worsened by the current fall in oil prices (below $90per barrel) amid low oil production levels (1.183 million barrels per day), which limits the inflow of forex through oil exports.

Severe currency depreciation is one of the major inflation-stoking factors. Inflation spiked to a high of 20.52 per cent in August and could stay elevated in September on the back of currency pressures and soaring energy prices before falling in September.

Nigeria remains heavily import dependent and is currently facing a dollar crunch. This means that the cost of importing products into the country will rise, triggering further inflationary pressures.

Meanwhile, the existence of multiple exchange rates in the country has contributed to the fast slide of the Naira and left investors spooked, slowing the inflow of foreign capital into the country. A decline in investment is negative for the growth of the economy.

“The Naira ranks as the 11th worst-performing currency against the US dollar in the list of 19 worst-performing currencies in the world. It ranks the fourth worst in Africa, ahead of the Ghana Cedi which ranked 13th globally and 3rd in Africa”

Global impact
According to the US agricultural executives, at least two years of bumper crops are needed to relieve pressure from drought and the war in Ukraine. However, the lackluster US harvest this year is setting back efforts to achieve a bumper global food supply. The analysts stated that high temperatures this summer exacerbated drought conditions in the U.S. West and the country’s Great Plains.

Intense heat in states such as Kansas, Nebraska and Oklahoma set in as corn crops were pollinating in many parts of the Grain Belt, when the plants required the most water. Some corn crops were also planted late this year after a wet spring, causing some yield loss.

On September 12, the U.S. Agriculture Department lowered its nationwide corn-production estimate to 13.9 billion bushels, 3 percent lower than its August projection, and 8 percent below 2021’s total. Soybean-production estimates this month were down 3 percent from a record projection in August, and down slightly from a year earlier. Years of bad weather affecting big crop-producing regions, including in South America, had stretched global crop supplies.

The volatility and uncertainty surrounding shipments from the Black Sea region also pose a risk to the global food supply. Russian President Vladimir Putin suggested earlier this month that Russia could pull out of the United Nations-brokered deal that allowed Ukraine grain exports to be shipped out of the black sea region. The Black Sea grain-export deal has helped free up grain storage space for Ukrainian farmers, and provide them with cash for next year’s crop. With the deal expiring in November, a non-renewal would further tighten global supplies and without sufficient sales, farmers could struggle to buy the seeds, fuel and other goods needed for fall planting.

“All these pose a threat to global food security and would be particularly acute in emerging countries with low agricultural output. In a September report on global food security in 77 low- and middle-income countries, the USDA estimated the number of food insecure people at 1.3 billion, up about 10 percent from the 2021 estimate. This increases the number of people at risk of falling into deeper poverty with a potential global recession looming,” a report by FDC warned.