Inflation – the rate of increase in the prices of goods and services over a given period of time – was famously described by President Ronald Reagan as “the greatest enemy of all the people and of our hopes for economic growth” perhaps because it is a phenomenon that creeps up silently and erodes wealth, indiscriminate of status, gender or your estate in life, and national economic growth must be considered net of inflation. Reagan’s statement was an amplification of the strong monetarist postulations of Professor Milton Friedman, which became received wisdom around the world.
And why not? Maynard Keynes and his global push for fiscalism, by which he opined that governments must stand by to bail out the economy whenever there is a major downturn, had lost face. Britain, after World War II, was in a state of anomie post bellum, almost totally ruined alongside many other European countries as a result of the war, and so nobody was going to take ideological guidance from Keynes. The aftermath of WW II wasn’t such that any government on the European continent could spend their ways out of anyway. They all queued up behind the United States for a bailout called the Marshall Plan.
Professor Friedman of the Chicago School of Thought also asserted – and he was an extremely persuasive man whose thoughts have dominated the field of Economics for decades now – that “inflation is always and everywhere a monetary phenomenon”. By this he meant that SUSTAINED inflation can only be caused by the expansion of money supply by central banks – nothing else. Inflation, in his theories, will only happen when money supply grows faster than economic output in an economy. This position by Friedman quickly cemented the understanding of inflation around the world as an economic phenomenon that should be abandoned stricto senso to central banks.
Central banks also stepped up to the plate and took charge of managing inflation – and at times targeting it through strategy – by deploying their chief instrument (interest rates). The key understanding is that there is an inverse relationship between inflation and interest rates. If the central bank wishes to slow down inflation, all it needs to do is work on increasing interest rate levels in the country. This is usually done by raising policy rates to which commercial, merchant and investment banks will respond. The inverse is the case if a central bank wishes to spur growth in the economy – interest rates can be reduced so that economic players borrow more and new and expanding businesses can employ more, then the economy grows.
He argued that when too much money chases too few goods, the value of money falls, causing prices to rise and that factors like oil shortages, supply chain issues, or wage increases (cost-push factors) can change relative prices, but they cannot cause a broad, sustained increase in all prices unless they are supported by an increase in the money supply. Friedman focused on the long-term, where he argued that the relationship between money supply and price levels is strongest, rather than short-term price fluctuations caused by temporary shocks.
There are a few flaws in Friedman’s cogitations, I dare say. The focus on the long run leaves us all dead. Lol. Anyhow, I mean that the short run also matters. Inflation inflicts pain on people and erodes wealth. That is an agreed fact. But why focus only on the long run? And what is a ‘long-run’. Perhaps we need to place more emphasis on short and medium-run inflation, after all the long run is made up of several short runs. Another concern is that Friedman’s understanding of money supply in his time seems fixated on the role of government and the central bank. A new understanding of money creation avers that a lot of that is done by banks. I wrote on these pages some months ago about the three theories of banking – financial intermediation, fractional reserve theory and money creation theory, delving into the very contemporary hypothesis of Richard Weiner, that banks create a whopping 97 per cent of money supply – not central banks – by simply granting the credits that then creates more deposits in the economy. Perhaps the proportion is not as large, but we must take cognizance of the ability for banks to create credit digitally in the ethers of their computers and the effect that has on expanding money supply.
In the year 2024 Nigeria suffered some of the worst inflation it had seen in decades with inflation peaking at 34.80 per cent by the end of that year. The headline inflation numbers actually mask a lot of pains that inflation passed Nigerians through as it did all over the world between 2021 to 2023. In those years – especially after the commencement of the Russia-Ukraine War and the volatility in energy prices, countries like the US and UK saw inflation at around the same level as what they saw after World War II. Inflation in those otherwise stable economies crossed double digits and it was a major crisis around cost of living. Elsewhere around the world in less mature economies things were worse. Turkey, 75 per cent; Argentina, 300 per cent; Ghana, 55 per cent; Egypt, 40 per cent; Ethiopia, 40 per cent; and so on. Food inflation in Nigeria climbed as high as 50 per cent, with prices on some food items climbing as high as 300 per cent. Mind you, most Nigerians divide their earnings among some basics of life – food, shelter, transport, a bit of clothing, some medicine and some social life. Granted that we are rather heavy on the socials – what with commitments to extended family, friends and sundry dependents – including world record spendings on weekend parties, owambes of all sorts and our newfound love for attending expensive lounges – these basic expenses take most people’s incomes. The thing about those items listed is that they exist in what is known as sellers’ markets. People must eat, live in some sort of accommodation, move around and wear clothes. People will buy at whatever prices they see, so sellers dictate the tune. And this opens up the people to exploitation, profiteering and price gouging.
In late 2023 I suffered to bring attention to the concept of Sellers’ Inflation as popularised by Professor Isabella Weber of University of Massachusetts. This concept flows alongside other observations about periods of stagflation – shrinkflation and skimpflation (situations where producers especially of consumer goods would reduce the volumes or quality of their usual products while they sell at the same or even higher prices). Nigerians can point to several goods that they buy that got smaller, less qualitative but whose prices have skyrocketed over time. Professor Weber, using the US as case study, was able to pin down an additional concern for economists struggling to tackle inflation around the world – the fact that many of these Fast-Moving Consumer Goods (FMCG) manufacturers were driven to increase prices and/or reduce the volumes or quality of their goods, on many/most occasions by their quest to maximise profits, not necessarily the additional costs they bore in producing goods. In sellers’ markets, it is the easiest thing to do to layer new costs with premiums which the final consumer is forced to bear, so that shareholders may continue to smile to the banks. There is therefore a serious need for us to keep protecting consumers.
We see this very often in Nigeria. An ongoing concern around Jet A1 fuel prices revealed that Nigerian face a peculiar problem as a result of the existence of too many middlemen. With the outbreak of the US/Israel/Iran war, the hike in the price of petroleum (PMS) in Nigeria became perhaps the highest by percentage in the hole world. We are still battling that issue at present.
If we are to learn from the experiences of 2023/2024, we will take note of the fact that beyond high interest rates level maintained by the Central Bank of Nigeria as a disincentive for inflation, other rather unorthodox approaches helped in taming inflation eventually. ‘Unorthodox’ will be the way these actions are tagged, chiefly because they couldn’t be read in any Economics textbook. But they make sense for our circumstances and stage of development. These are:
- Market Associations, including Transporters Associations, were contacted and made to see reason not to continue the spiraling increases in prices. They really helped in enforcing sanity and stemming the spiraling panic that could have undone the economy.
- Village Chiefs and Community Heads sent emissaries to the markets to appeal to traders and on some occasions, they invoked whatever traders feared against those who sought to take advantage of consumers. Many pundits speak about ‘price discovery,’ but in an economy like ours, and for the products that really concern most of our people, price discovery is often random, based on panic, or at best a product of the opinions and desires of small cartels and oligopolists.
- Federal Competition and Consumer Protection Council (FCCPC) became bolder and more assertive in tracking situations where people profiteers or engaged in Price Gouging. A few examples were made around the country that went very far in taming markets.
- Constant education and pushback by a few analysts on TV and in opinion pages also helped in informing the public and ensuring that people could begin to speak up and resist price gougers, exploiters and profiteers. Nigerians were made to see that they cannot just sit back and blame government but if they are being exploited, they should resist by boycotting exploiters or by speaking up loudly.
- Social media also helped greatly. There were instances when Nigerians traveled to China and came on social media to let us all know that many expensive items were obtained at dirt cheap prices there. Nigerian importers were found to mark up their prices by as much as 3,000 per cent in some instances! This caused a price war on many products, with the consumer being better for it. This price war is still ongoing.
- As it pertains to food – which remains a key driver of inflation in Nigeria – prices went down because there was more production which caused a glut. Nigeria has been lucky to have good harvests in the years 2023, 2024 and 2025. Floods were moderate (as against what happened in 2022). We should put that down to Mother Nature but it counts for the economy. Also, more people went into farming in reaction to the food inflation of 2023 and 2024, with urban farming being promoted by the First Lady of Nigeria, among other personalities. This created a glut in maize, cassava, pineapples, cocoa, rice among others. Only rice was allowed for imports among these products.
Of course, some of these factors listed may not be in textbooks verbatim but they are valid economic responses in establishing the price stability we saw in 2025 (when even farmers complained bitterly of losses when food prices crashed constantly). This is our own reality. Some Economists may frown at the activities of our own Federal Competition and Consumer Protection Commission (FCCPC) but we must remind them that every state in the US (the global headquarters of Capitalism) has their own strict anti-price gouging laws. See https://www.ncsl.org/financial-services/price-gouging-state-statutes.
In 2005 at the aftermath of Hurricane Katrina, a certain John Shepperson who sought to profiteer off the misery of people who had lost access to electricity in vast swathes of Louisiana was arrested and jailed for doubling the prices of generators between Kentucky and Louisiana. It is established that every country must take care of their peculiar situation, borrowing from their cultures, customs, and whatever it is that can influence their people to behave in particular ways. Those who preach the idea of perfect markets should ask themselves why Canada froze its property markets from foreigners (Nigerians especially) a couple of years ago.
To conclude, my concerns are that now that we transit into an inflation targeting regime, will we need a longer period to start to stave off high-interest rate levels? Targeting inflation may necessarily mean maintaining high interest rates, which continues to hurt businesses and economic growth. Is there a sweet spot somewhere, where we can tinker a little with interest rates without setting off more inflation – considering the farrago of peculiarities I have listed above? Could we convince the Monetary Policy Committee to see whether these are valid concerns and measure them against the pass-through effects of reduced interest rates to see which will be more beneficial? The fact remains that the short-run inflation (which put together becomes long-run inflation drivers) which Friedman’s analysis ignores are actually what matters more for us here.
Yes, fuel prices, short-term inefficiencies, scarcities and distortions, droughts and floods, indeed insecurity and displacements, are what cause most of our inflation here. And these issues matter more to us than arcane long-term money supply considerations. These issues could be a developing-country thing even though I have based my discussions on Nigeria specifically. One major concern I have about our country is that people don’t yet understand the idea behind gradual price increases and so every increase goes up in leaps and bounds. Not for an average Nigeria to increase his price by 10 per cent or 15 per cent. We start from 50 per cent. 100 per cent price increase overnight is standard when there is a scarcity. And these increases tend to become permanent especially in the nexus of products that are in the sellers’ market. Perhaps we need a massive conference or two, to discuss these matters.
‘Tope Fasua is the special adviser to the President on Economic Matters.
