Inflationary pressures have dealt a severe blow to household spending in Nigeria, resulting in the lowest household consumption expenditure in six years. According to a recent report by the National Bureau of Statistics (NBS), Nigeria’s household consumption expenditure witnessed a negative real annual growth rate of 4.07 percent in 2022, a significant drop from the 25.65 percent growth recorded in the previous year.

Household consumption expenditure constitutes a substantial portion of the real Gross Domestic Product (GDP) at market prices. This encompasses expenditures incurred by resident households on individual consumption goods and services, including imputed expenditure. The contraction in household consumption, the first since 2019, has raised concerns about the overall health of the Nigerian economy.

Experts observe that the contraction is largely a result of the inflationary pressures we had in most of 2022. Between the second and fourth quarter, inflation kept rising, which affected household consumption.” The rising inflation has particularly impacted low-income earners and vulnerable segments of society, forcing them to tighten their belts and reduce their spending.

Uchenna Uzo, a consumer expert and faculty director at the Lagos Business School, highlights that inflation, at its highest level in 17 years, has led to higher product prices. “There was more rationalization in spending last year,” Uzo comments. The effects of inflation have led households to reconsider their spending habits in an effort to navigate the challenges posed by rising prices.

The inflation surge in Nigeria can be attributed to various factors, including the fallout of the Russia-Ukraine war and worsening insecurity. Since July of the previous year, inflation has maintained a 17-year high, reaching its peak in APRIL 2023 at 22.22 percent. It rose further in June to reach a new high of 22.79%.

Food inflation, which constitutes 50 percent of the inflation rate, rose to 25.25 percent in June from 24.82 percent in the previous month.

According to NBC’s June food price watch, prices of staple foods consumed every day by Nigerians increased from as low as 8% to as high as 12% on a month-to-month basis and from June 2022 to June 2023, Nigerians paid on average a 30% increase in food prices over the 12-month period.

The survey re-emphasizes how expensive feeding has become for individuals and households in Nigeria.

For example, the average cost of 1kg of boneless beef increased by 5.26% from N2,520.52 in May to N2,653.02 in June 2023. On a year-on-year basis, the average cost of food item increased by 27.55% from June 2022 to June 2023.

Rice, Nigeria’s major staple food, saw its average price jump from N555.18 per kg in May to N608.20- an increase of 9.55% for the monthly.

Data from the National Bureau of Statistics shows that the average Nigerian reportedly spent around 56% of their income on food.

This contrasts what obtains in developed climes like the U.S, Canada, U.K etc spend just under 15% of their income on food.

With the new report from the NBS signalling an increase in food prices, the share of food bills in Nigerians’ expenditure is set to further increase which doesn’t bode well as income has remained stagnant for some time. Also, this means that households have less money to spend on discretionary expenses.

Impact on wages and living standards

The NBS report reveals that in 2022, the compensation of employees, encompassing wages and salaries, declined to 4.41 percent, a significant drop from the 13.68 percent recorded in 2021. Gabriel Idahosa, deputy president of the Lagos Chamber of Commerce and Industry, highlights that incomes are not rising as fast as inflation rates, resulting in households cutting back on essential goods and services.

A recent report by Phillips Consulting Limited emphasizes that over 90 percent of Nigerians aged 18 or older have experienced increased living costs, leading to reduced spending on both essential and non-essential items. This trend is disproportionately affecting low-income households, resulting in declining living standards and negative impacts on physical and mental health.

Manufacturing sector and businesses affected

The impact of rising inflation extends beyond households to the business sector, particularly the manufacturing industry. The inventory of unsold finished goods in the manufacturing sector increased by 22 percent in 2022, reaching N469.7 billion compared to N384.6 billion in 2021. Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria, attributes this high inventory to reduced purchasing power in the economy, stemming from declining household incomes due to persistent inflationary pressures.