Two years ago, Amarachi earned ₦300,000 monthly income. She loved going shopping and would go on a shopping spree twice every month. At the time, her entire grocery list cost about ₦65,000. She would buy a crate of eggs for ₦1,500, a pack of a bottle of water for ₦2,000, a pack of spaghetti for ₦250, a carton of 120g of noodles for ₦3,400 and other things for lesser amounts. Today, the same amount of money can only afford to cover half the same list. A crate of eggs now costs ₦2,500, a pack of spaghetti for ₦500, a pack of bottle water for ₦4,000 and a carton of the same noodles for ₦7,000. Inflation happened, and Amarachi lost her purchasing power. 

What is Inflation?

Inflation is a term that has become all too familiar in Nigeria. It occurs when the general price level of goods and services in the economy increases over time. Various factors, such as an increase in the money supply or a decrease in the supply of goods and services can cause it. Inflation has been a constant thorn in the flesh of the Nigerian economy, and it has affected the purchasing power of Nigerians.

Understanding Inflation and Inflation Rates in Nigeria

Inflation in Nigeria is not a new phenomenon. It has been a persistent problem for several years, with the country experiencing high inflation rates for decades. According to a recent report by the National Bureau of Statistics (NBS), Nigeria’s climbing inflation rate, which took a brief pause in December, continued to climb in January, 2023 to 21.82% from 21.34% in December 2022. As at February, the inflation rate climbed to 21.91% and is expected to remain high in the foreseeable future.

A further breakdown of the numbers shows that food inflation increased. People are spending more on food items than a few years ago. The same applies to core inflation, covering services like haircuts, health care, and products like energy items like fuel, diesel, and kerosene— all of which have been increasing.

The rise in the general price level of goods and services in the economy has a ripple effect on the standard of living of Nigerians. It reduces the purchasing power of Nigerians, and it makes it difficult for businesses to operate profitably. 

Inflation can also have a significant impact on personal finances, particularly for those who rely on fixed-income investments or have savings that are not keeping up with the rate of inflation. However, there are ways to protect your investments from inflation. One option is to invest in assets that have historically performed well during times of inflation, such as real estate, commodities, and stocks, which Risevest offers.

High Inflation Rate in Nigeria: Factors Responsible.

Inflation can generally be caused by a variety of factors such as high government spending, high exchange rates, high fuel prices, and insecurity. In Nigeria, several factors contribute to the high inflation rate in Nigeria that has been experienced in recent years. Some of these factors include:

Monetary Policy: One of the primary causes of the high inflation rate in Nigeria is monetary policy. When the Central Bank of Nigeria (CBN) increases the money supply by printing more money, it can lead to an increase in inflation. This is because more money is in circulation, which can lead to higher demand for goods and services, and ultimately drive up prices.

Government Spending: Government spending is another factor that can contribute to inflation in Nigeria. When the government spends more money than it collects in taxes, it can lead to an increase in the money supply and put upward pressure on prices. In addition, government spending can also lead to increased demand for goods and services, which can further drive up prices.

Exchange Rate: The exchange rate of the Nigerian currency, the naira, can also impact inflation. When the naira depreciates against other currencies, it can lead to an increase in the price of imported goods and services. This, in turn, can lead to inflation as businesses pass on the increased costs to consumers.

Supply Chain Disruptions: Disruptions in the supply chain can also lead to inflation in Nigeria. For example, if there is a shortage of a particular commodity, such as oil or wheat, it can lead to increased prices as demand outstrips supply. This can have a ripple effect throughout the economy, as prices of other goods and services that rely on the commodity may also increase.

Infrastructure Challenges: Nigeria’s infrastructure challenges, such as poor roads and inadequate power supply, can also contribute to inflation. These challenges can increase the cost of doing business, as companies may have to spend more money on transportation and power generation. These increased costs can be passed on to consumers, leading to higher prices.

Security Challenges: Nigeria’s security challenges, such as terrorism and banditry, can also impact inflation. These challenges can disrupt economic activity, leading to supply chain disruptions and increased costs for businesses. In addition, insecurity can also lead to a decrease in foreign investment, which can put downward pressure on the exchange rate and increase inflation.

Impacts of Inflation on the Economy and People.

The faster inflation rises in Nigeria, the lower our purchasing power— like Amarachi, we may not not be able to afford things at the usual cost we do now or like we did in the past. And until we address the issues affecting the inflation rate in Nigeria, as stated above, the value of our income and purchasing power will continue to decline. 

Another impact of inflation on people like Amarachi is that it can lead to decreased savings. As the cost of living increases, people may have to spend more of their income on necessities, leaving less money for saving and investment. This can lead to decreased capital formation and hinder economic growth in the long run.

Inflation also affects the economy in various ways. One impact of inflation on the economy is a decrease in foreign investment. As the cost of living increases, investors may hesitate to invest in the country. This can lead to a decrease in the capital inflow into the country, leading to a slowdown in economic growth.

Hedging Against Inflation in Nigeria

One of the ways to hedge against inflation in Nigeria is by investing in Risevest. Risevest is an investment platform that enables Nigerians to invest in stocks, real estate, and fixed income, helping Nigerians hedge against inflation. Here are the investment options:

  1. Stock Investing

Investing in stocks is one of the best ways to hedge against inflation in Nigeria. Stocks are shares of ownership in a company, and they tend to appreciate in value over time. When you invest in stocks, you are investing in the future earnings of the company. As the company grows and becomes more profitable, the value of your stocks will increase. This increase in value will help you beat inflation and maintain your purchasing power. Risevest offers access to stocks of  global companies. This means that you can invest in companies that are likely to perform well regardless of the state of the Nigerian economy.

  1. Bond Investing

Another way to hedge against inflation in Nigeria is by investing in bonds. Bonds are debt securities that are issued by companies or governments. When you invest in bonds, you are lending money to the issuer, and they promise to pay you back with interest over time. Bonds tend to offer a fixed rate of return, which means that they can protect you against inflation. Investing in them can provide a steady income stream and protect you against inflation. Risevest offers access to some of these bonds. 

  1. Dollar Investing

Investing in foreign currencies such as the US dollar is another way to hedge against inflation in Nigeria. The value of the Nigerian naira has been volatile in recent years, and investing in foreign currencies can help you protect your investments from currency fluctuations. Risevest offers access to dollar-denominated investments, which means that you can invest in assets that are denominated in US dollars.

  1. Real Estate Investing

Real estate is another asset class that can help you hedge against inflation in Nigeria. Real estate tends to appreciate over time, providing a steady rental income stream. Investing in real estate can help you protect your investments from inflation and provide a source of passive income. Risevest also offers access to real estate investment trusts (REITs), which are companies that own and manage income-generating real estate properties.

Inflation is a persistent problem in Nigeria and can have a significant impact on the economy and everyone. Hence, it is critical to hedge your funds and investment against inflation to benefit from long-term growth in emerging markets. You can also read more tips on how you can survive the rising inflation in Nigeria. We also wrote how you can navigate inflation as an investor in this article.