Inflation is a silent enemy that creeps up on people and erodes their wealth, regardless of their status or position in life. According to 'Tope Fasua, special adviser to the President on Economic Matters, President Ronald Reagan described it as 'the greatest enemy of all the people and of our hopes for economic growth'. Fasua's statement is based on the strong monetarist postulations of Professor Milton Friedman, which have become received wisdom around the world. He didn't just stop at Friedman's theories, though

  • Fasua also considered the implications of inflation on everyday people.

Professor Friedman of the Chicago School of Thought asserted that 'inflation is always and everywhere a monetary phenomenon', meaning that sustained inflation can only be caused by the expansion of money supply by Central Banks. However, Fasua argues that there are flaws in Friedman's cogitations, particularly the focus on the long run, which leaves us all dead. He believes that the short run also matters, as inflation inflicts pain on people and erodes wealth. It's a fact that inflation can't be ignored, and Fasua won't let us forget it.

Nigeria suffered some of the worst inflation it had seen in decades in 2024, with inflation peaking at 34.80% by the end of that year. The headline inflation numbers actually mask a lot of pains that inflation passed Nigerians through, as it did all over the world between 2021 to 2023. Food inflation in Nigeria climbed as high as 50%, with prices on some food items climbing as high as 300%. Fasua notes that most Nigerians divide their earnings among some basics of life, such as food, shelter, transport, a bit of clothing, some medicine, and some social life. They can't afford to have their money devalued by inflation, and it's a struggle to make ends meet.

The concept of Sellers' Inflation, popularised by Professor Isabella Weber of the University of Massachusetts, is also relevant to Nigeria's situation. This concept flows alongside other observations about periods of stagflation, such as shrinkflation and skimpflation, where producers of consumer goods reduce the volumes or quality of their products while selling at the same or even higher prices. Fasua argues that Nigerians can point to several goods that they buy that have gotten smaller, less qualitative, but whose prices have skyrocketed over time. He's right - it's not just about the numbers, it's about how it affects people's lives.

Fasua believes that the focus on the long run leaves us all dead, and that we need to place more emphasis on short and medium-run inflation. He also notes that the understanding of money creation has changed, with banks now creating most of the money supply through credit. This has implications for how we tackle inflation, as simply raising interest rates may not be enough to combat it. It's a complex issue, and Fasua doesn't think we should oversimplify it.

In 2023, Nigeria's inflation rate began to decline, thanks in part to unorthodox approaches taken by the government and the Central Bank of Nigeria. These approaches included measures to protect consumers from price gouging and profiteering, such as the activities of the Federal Competition and Consumer Protection Commission (FCCPC). Fasua argues that these measures were effective in establishing price stability, and that we need to learn from these experiences to tackle inflation in the future. We can't just rely on one approach - we need to be flexible and adapt to the situation.

'Inflation is always and everywhere a monetary phenomenon'

  • Professor Milton Friedman

The key understanding is that there is an inverse relationship between inflation and interest rates. If the central bank wishes to slow down inflation, all it needs to do is work on increasing interest rate levels in the country. However, Fasua argues that this approach may not be effective in Nigeria's case, given the peculiarities of the country's economy. He notes that fuel prices, short-term inefficiencies, scarcities, and distortions are what cause most of Nigeria's inflation, and that these issues matter more to Nigerians than long-term money supply considerations. It's not a straightforward solution - we need to consider the specifics of Nigeria's economy.

Fasua's concerns are that now that we are transiting into an inflation-targeting regime, we may need a longer period to start to stave off high-interest rate levels. Targeting inflation may necessarily mean maintaining high interest rates, which continues to hurt businesses and economic growth. He asks if there is a sweet spot somewhere, where we can tinker a little with interest rates without setting off more inflation, considering the peculiarities of Nigeria's economy. It's a delicate balance, and we can't afford to get it wrong.

  • Nigeria's inflation rate peaked at 34.80% in 2024
  • Food inflation in Nigeria climbed as high as 50%
  • Prices on some food items climbed as high as 300%
  • The Central Bank of Nigeria has been using high interest rates to combat inflation
  • 'Tope Fasua argues that this approach may not be effective in Nigeria's case

Fasua's article highlights the need for a more nuanced approach to tackling inflation in Nigeria. Rather than simply relying on high interest rates, we need to consider the peculiarities of the country's economy and take a more holistic approach to establishing price stability. This may involve a combination of monetary and fiscal policies, as well as measures to protect consumers from price gouging and profiteering. We can't just rely on one solution - we need to be proactive and adaptable.

The fact remains that short-run inflation, which put together becomes long-run inflation drivers, is what matters more for Nigerians. Fuel prices, short-term inefficiencies, scarcities, and distortions are what cause most of Nigeria's inflation, and these issues matter more to Nigerians than long-term money supply considerations. Fasua's concerns are valid, and we need to take them into consideration as we move forward in our efforts to tackle inflation in Nigeria. We won't solve it overnight, but we can make progress.

As Fasua notes, every country must take care of their peculiar situation, borrowing from their cultures, customs, and whatever it is that can influence their people to behave in particular ways. In the case of Nigeria, this means taking a more nuanced approach to tackling inflation, one that considers the country's unique economic challenges and opportunities. By doing so, we can establish price stability and promote economic growth, while also protecting consumers from the negative effects of inflation. It's a challenge, but we can't give up - we need to keep working towards a solution.