Inflation Highway… (DJ Kaywise Ft Phyno – High Way)
I visited a supermarket over the weekend, and I was beyond stunned when I got my bill as it just wasn’t adding up. I kept looking at my receipt and asking the cashier to double-check to ensure there were no errors. After much back and forth, it turned out that there were no errors; prices of food items had just gone up.
I think it is safe to say that the purchasing power for a lot of Nigerians has weakened significantly and shows very little signs of slowing down. Like me, I think many Nigerians will be anxiously waiting to see how the fiscal and monetary authorities intend to find solutions to reverse this trend.
Nevertheless, we will be looking at the inflation figures that came out last week and some of the plans that the federal government has highlighted in the 2021 budget to help curb the rising inflation rate.
Nigeria’s annual inflation rate soared for a 16th straight month to 15.75 percent in December of 2020. At this point, it is safe to say inflation is on the “highway.” Food Inflation grew by 1.26% to 19.56% in December as the insecurity in the north coupled with the festive season added further inflation pressure to food prices.
Core inflation also picked up in December 2020, increasing by 0.32% to 11.37% in December 2020.
The highest increases were recorded in prices of Passenger transport by air, Medical services, Hospital services, Shoes, and other footwear, Passenger transport by road, Hairdressing salons and personal grooming establishments, Repair of furniture, Vehicle spare parts, Pharmaceutical products, Motor cars, Maintenance and repair of personal transport equipment, Paramedical services, Motorcycle, Dental services, and Bicycles.
The Great Conflict…
With FX illiquidity remaining concern in 2021, Energy price, which has a strong correlation with the crude oil price, is expected to sustain its upward trajectory on the back of the global recovery and continuous vaccine rollout.
That means the higher oil prices get, the higher the price of PMS which is a major component in transport costs locally. Which leaves us with a question for you, “rise in oil prices (improves dollar inflow and revenue but increases the price of PMS) or a decline in oil prices (Dampens dollar inflow and revenue but reduces the price of PMS), which do you prefer?”
The Fiscal play…
The Minister for Finance, Budget, and National Planning, Dr. Zainab Ahmed disclosed during a virtual presentation of the breakdown of the 2021 FGN Budget that the federal government will be using spending on transportation as a fiscal tool to curb inflation.
She stated that the improvement in the transportation sector will help ease the cost of food prices, therefore easing the overall pressure on food inflation. The Ministry of Transport is expected to spend N209.73 billion, out of which N71.14 billion accrues to numerous railway counterpart payments and the Nigerian Railway Modernisation Project (Lagos-Ibadan section which is expected to gulp N129bn).
The federal government also implemented a reduction in the importation of transportation vehicles. Reduction of import duty on tractors from 35% to 5%, mass transit vehicles for the transport of more than 10 persons and trucks from 35% to 10%, and reduction of import levy on cars from 30%to 5%.
We expect this development to improve activity in the transportation sector, as well as have a ripple effect on the broader-based economy.
America is Blue again!
A distant observer of the events that played out in the United States over the past weeks could easily mistake the happenings in the World’s largest economy for the cinematic plot of an upcoming blockbuster movie.
The Capitol Building was invaded by rioters, which led to the death and injury of several people. Bombs were found at the headquarters of the Democratic National Committee and the Republican National Committee, and the President of the United States was impeached by the House – AGAIN!
While a reference to the 2016 drama series “Designated Survivor” might seem hyperbolical given the absence of international terrorist attacks on the Capitol Building, this is still the closest we can get (I hope) in a realistic context in modern times.
On the 13th of January 2021, the U.S. House of Representatives passed a single article of impeachment, charging President Trump with “incitement of insurrection.” Of the 429 members of the House that voted on the impeachment article, 232 voted for impeachment, including 10 republicans.
The series of events that culminated into the impeachment was quite simple – The U.S. had a Presidential election; Trump lost the election to Biden; Trump alleged that the election was stolen through widespread voter fraud; Trump failed to prove these allegations in court; Trump encouraged his supporters to go on a protest at the Capitol house where the Congress was meeting to certify the election results in favour of Biden; and finally, some supporters went “Viking” on the Capitol (Literally! someone was dressed as a Viking, and another held a pitchfork).
Sure, you cannot blame the forest fire on a lit matchstick if there was already so much dry wood, but it would be very helpful if no one lit the matchstick at all.
The impeachment was not the only backlash President Trump received because of the riot, as several social media outlets banned Trump and his allies from using their platforms, including – Twitter, Facebook, Instagram, YouTube, Reddit, and Snapchat, to mention a few.
Despite all these, the U.S. stock market proved to be impervious to the ongoing threat to Democracy, as the Dow Jones industrial average flirted momentarily with the record 31,000 marks the day after the riot at the Capitol.
Currently, all attention is on the upcoming inauguration of President-elect, Joe Biden, on Wednesday, January 20th, 2021, as there are security concerns about the event.
Nevertheless, this will be a historic moment in the U.S., as the country would have her first African American and Asian-American Vice President. Expectations are locked on further government spending by the incoming Biden administration, which would weaken the greenback.
We got a glimpse of this last week when Biden unveiled his US$1.9 trillion COVID-19 relief package. So, grab your popcorn, and watch as the U.S. spirals into debates as to whether the benefits of more government spending are worth bloating the national deficit. It would be dramatic, but nothing compared to the events of the past weeks.