According to SB Morgen, Nigeria’s geopolitical intelligence platform, skipping inflation has never caused political unrest in the country, but the trend may change if the government does not take immediate steps to manage the current rising prices “responsibly.”
The report, which traces Nigeria’s inflationary trend since independence, explains the underlying causes of inflation, implying that the country has had productivity issues since the 1970s.
“To improve Nigerian productivity and the Nigerian economy, drastic measures must be implemented with laser focus.” This will be accomplished through improved education, the provision of tools and infrastructure, and the protection of lives, property, and property rights.
“Education will also include disabusing the Nigerian psyche of destructive mantras like equating the strength of the economy not with its productivity but with the strength of the currency, mantras that became entrenched in the book years of the 1970s and that continue to be used as a tool by a greedy elite to mobilize the people against reforms that would ultimately be better for the country,” the report states.
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It emphasizes that as people’s purchasing power erodes and they are unable to purchase essential commodities, the fabric of social cohesion begins to fray. This, it claims, increases social tension and political unease. It argues that this influences the importance that modern economies place on maintaining price stability.
According to the report, Nigerians’ standard of living will improve significantly with higher productivity and a lower inflation rate, which can only be achieved through reforms that reduce “structural productivity inhibitors.”
It questions the possibility of meeting the monetary authority’s single-inflation-rate target, claiming that the country only met the target in 25 of the 62 post-independence years. “It is clear that our ability to achieve this has declined decade by decade since independence,” it says.
It goes on to say that the country experienced deflation only three times between 1960 and 1969. In 1961, the inflation rate was -2.7 percent, with another negative inflation rate of 3.7% occurring in 1967 and another in 1968. (0.47 percent).
It examines the policy options pursued by successive administrations to achieve a single-digit inflation rate, concluding that the majority of them failed miserably. It claims that the discovery of hydrocarbons and the subsequent oil boom were critical in determining the role of money supply in price instability.
“Oil money had instilled in the Nigerian public psyche a new paradigm of an endless supply of money during a boom period.” The Udoji Award, in which the government essentially distributed money to civil servants, resulted in a sudden increase in spending power in 1974,” it recalls, lamenting that the increase in money supply was not matched by commensurate productivity.
“The private sector, which was the engine of production, was unable to meet the demand that the cash-rich public servants provided.” Furthermore, the 1971 price controls were causing severe shortages in essential goods as traders struggled to replace their goods at the prices the controls required them to sell at. In response, demand-pull and cost-push drove inflation into the double digits in 1974, reaching 12.67 percent, and a black market flourished.”