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Nigerians are spending more but getting less value as inflation wiped at least N7.61 trillion off consumers in 2023.

According to new data by the National Bureau of Statistics (NBS), households’ final consumption expenditure rose to N141.69 trillion (purchasers’ value) in 2023, representing a 30.63 percent increase from N108.47 trillion spent in 2021. This growth, however, was just nominal.

This was different in real terms, according to the NBS data, which is entitled, ‘Nigerian Gross Domestic Product Report (Expenditure and Income Approach) Q3, Q4 2023.’

Read also: The anatomy of inflation: A letter to Mr President

In real terms, Nigerians spent N52.45 trillion on household consumption in 2021. However, this fell to N44.84 trillion in 2023, representing N7.61 trillion reduction in real terms.

In economics, the real value of an item is its nominal value adjusted for inflation, says Investopedia, an online business dictionary.

The Organisation for Economic Co-operation and Development defines household spending as the amount of final consumption expenditure made by households to meet their everyday needs, such as food, clothing, housing (rent), energy, transport, durable goods, health costs, leisure, and miscellaneous services.

In 2022, the NBS blamed the decline in consumption expenditures on rising prices and challenging economic conditions.

Inflation has been one of Nigeria’s biggest headaches. It stood at 28.92 per cent in Nigeria in December 2023 as against 15.63 per cent in December 2021. It has since risen significantly in Africa’ most populous nation, hitting 33.95 per cent in May 2024.

High food prices, currently at 40.66 percent, have continued to exert pressure on Nigerians’ wallets.

In 2023, Picodi, an international e-commerce organisation, revealed that Nigerian households spent 59 percent of their income on food, the highest globally.

According to a ‘Cost of Healthy Diet’ report by the NBS and the Global Alliance for Improved Nutrition, the cost of a healthy diet rose by 110.7 percent to N1,035 per day in April 2024 from N491 per day in the same period last year.

Nigeria’s high inflation increased the number of poor Nigerians to 104 million in 2023 from 89.8 million, according to the World Bank’s latest ‘Nigeria Development Update’ report.

Read also: Nigeria inflation remains high at 33.95% despite month-on-month slowdown

Inflation is fuelled by several factors in Nigeria, including excess liquidity, insecurity, naira devaluation, among others.

Muda Yusuf, chief executive of Center for the Promotion of Private Enterprise (CPPE), said the spiraling inflation dynamics should be elevated to the level of an economic emergency, deserving an urgent policy response at the highest level of government.

“The impact on citizens welfare is inestimable. The effect on SMEs is troubling. There is elevated social discontent, driven by increasing joblessness and hunger,” he said in a statement to BusinessDay.

Yusuf explained that the key drivers of inflation include: high and increased energy cost, worsening currency depreciation, escalating transportation cost, high import duty on manufacturing inputs, illiquidity in the forex market, bottlenecks in the logistics chain, security concerns, low productivity, and the Central Bank of Nigeria (CBN) financing of fiscal deficit.

“To tackle inflation, these key drivers would have to be addressed. All forms of taxes and levies on the importation of petroleum products should be suspended to give a respite on the spiking energy cost,” he recommended.

“There should also be deeper stakeholder engagements across sectors to develop an enduring strategy on the way forward,” he added.

Analysts at Comercio Partners Research noted in their recent research that high food inflation has shrunken Nigerians’ wallets.

“High inflation, particularly in food prices, has eroded purchasing power, negatively impacting consumer spending – a critical driver of economic growth,” the research-based organisation said.

Naira devaluation is also a major fuel to Nigeria’s inflation and economic crisis. Naira has lost more than 50 per cent of its value since May 2023 when there was change of government in Nigeria.

In October 2023, the World Bank ranked the naira as one of the worst-performing currencies in Africa. A weaker naira has translated into higher prices for goods in an import-driven economy.

“The naira has weakened by nearly 40 per cent against the US dollar since the mid-June devaluation… their inflationary effects in the near term can erode the purchasing power of households and weigh on economic activity,” the global lender said in October 2023.

A report entitled, ‘Talent Management, A New World Order: Shifting Paradigms’ by Phillips Consulting Limited disclosed that more Nigerians are having to cut down on non-essentials to adjust to rising costs.

Read also: World Bank to CBN: Interest rates hike not enough to tame inflation

Nigerians are spending less on luxury and making lifestyle changes, including cutting down on clothes, going out for meals, going out for coffee or drink, food shopping, and cutting down on subscriptions and memberships.

To combat surging headline inflation, the CBN has been hiking its monetary policy rate, which has stood at 26.25 per cent since May 2024 from 24.75 per cent in March.

However, the World Bank, in its ‘Global Economic Prospects’ report, noted that it is not a remedy to the current galloping inflation in Nigeria.

“There is a possibility that the tightening of monetary policy stops short of reining in inflation,” the report said.