Rising Inflation and Unemployment: The Answers By Dr. Ahmed Adamu

 

 

The Nigerian inflation rate is now 12.8%, this is higher than what it was (8%) in 2014, this is evident in the prices of common consumer goods. Now, household commodities like tomatoes, rice, egg, milk, spaghetti, maize, matches etc. have all risen, some even doubled their initial prices. This is on top of the scarce and expensive petrol. It is also happening at a time when there are more money in circulation. Currently there are close to N2 trillion in circulation, which means people have more money, but the question is how many of these people possesses the money. Despite the increasing money in circulation, people still struggle to afford the expensive consumer goods.

 

People now adjust their life styles and downgrade the quality of foods they eat, and this affect the performance of the economy as the aggregate demand keep reducing. In addition, the increase in inflation supposed to have been triggered by increase in employment opportunities in the short run, but that is not the case in Nigeria, as the unemployment rate increased together with inflation.

 

This indicates that there are more people without jobs, and prices of goods and services have increased. People can easily think there is stagflation in Nigeria, but that is not the case. If the natural rate of unemployment in the country is known, we would have been able to discover if there was trade-off between slight reductions in natural unemployment rate with the increasing inflation rate. However, with very little increase in the unemployment rate, which is a marginal 0.5%, we can assume there is reduction in the rate of natural unemployment.

 

This is because, the number of people without job due to lack of skills or due to the waiting period have reduced. Even though, there are increasing number of unemployed people due to low growth of the economy at the interim.  This is possible because the speed of the economy has reduced by 0.73% within the period of last quarter of last year and first quarter of this year. So, the marginal increase of unemployment rate was a result of slow growth of the economy, though the natural unemployment can be said to have reduced slightly.

 

Therefore, we can conclude that increase in inflation in Nigeria was as a result reduction in the natural rate of unemployment within this period. Because, demand for higher wages and external factors like the sudden shock in petrol price, higher import cost and sharp reduction in electricity supply might have triggered the recent increase in inflation. However, if the trend continues, the increase in inflation will cause more unemployment in the future, as producers will find it difficult to acquire factors of production and make their profit low due to the resultant low consumption.

 

Even through, there is more money in circulation, but yet, there is less money in the hands of average Nigerians, and the effect of reduction of money in circulation will be minimal as it will further reduce the money in the hands of the average citizen. So, the monetary policy shall not affect the money supply, but reduce the interest rate to encourage more investment. Reduction of the interest rate will compel the few that hold so much money to bring out their money from the bank and invest, and if they invest, they will employ labour, and this will address the unemployment. In addition, there have to be measures to checkmate inflation sentiment and undue maximization of revenue by suppliers. The price of petrol has to be strictly regulated to ensure affordable competitive price, so that raw materials can be acquired cheaply.

 

The recent depreciation of Naira to US dollar has made the cost of import prices higher, so, importation especially of refined petroleum products should be totally eliminated in midterm. This will drastically reduce the inflation rate, and provide more employment. Since there is no effect of wage increase on the current inflation rise, the regulated wages shall be maintained for now until when inflation rate is cut down to about 5%.

 

With the current China/Nigeria currency deal, we will expect cheaper cost of production and reduction in inflation, as cheaper raw materials can be imported from China at the short term. However, if this is also prolonged, there will be resurgence of inflation as cost of importation will be higher with continues overdependence on China raw materials.

 

Finally, on a related note, to address part of the food inflation, the government should lift the ban on land importation of rice. If rice is still imported through the sea, then it should be allowed to be imported through the land. What the government should do is to take measures to track and organise the land rice importation, so as to generate revenue from import taxes. However, there should be provisions and incentives for rice farming locally. The price of domestic rice should be subsidised so as to discourage buying foreign rice. The local farmers shall be provided with capital and suitable farming locations for rice, so as to encourage local rice production and discourage its importation. The current ban on land importation of rice has led to the scarcity of rice, unemployment and rise in rice price. It is discriminating to ban small-scale importation through the land if large sea importers are still allowed to import. Therefore, government should lift the ban on land rice importation in the short term before the effects of new measures and investment in local rice farming start to manifest.

 

Dr. Ahmed Adamu,

Petroleum Economist and Development Expert,

Pioneer Global Chairperson of Commonwealth  Youth Council,

University Lecturer (Economics), Umaru Musa Yar’adua University Katsina.

 

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One Thought to “Rising Inflation and Unemployment: The Answers By Dr. Ahmed Adamu”

  1. aminu tanimu

    wow great research Dr thanks.

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