JULIANA AJAYI, in this piece, tries to fix the puzzle of either spending or saving during inflation
Over time, man has been taught the concept and importance of savings – the practice of setting a certain percentage aside for rainy days. A step further into ensuring that he has enough to spare, he adopts the art of financial prudence, which allows him to plan his income, and invest wisely, while exercising care in his spending.
In a country like Nigeria, where inflation is on the rise, some households find it not only hard to meet the standard of living but also forget the term ‘savings’, since they are not afforded the opportunity.
According to a study, inflationary pressures first began to spread out through 2021, particularly in Africa, Western Asia, Latin America and the Caribbean. These regions were noted to have headline inflationary figures in double digits due to rising oil and food prices, supply chain disruptions and the depreciation of local/domestic currencies.
Notably, among countries like Argentina, Chile and Turkey, Nigeria faced significant depreciation pressures throughout 2021. Inflationary pressures have since risen due to the accommodative monetary stances that have remained as part of the pandemic response and wage indexation.
Inflation is, indeed, the enemy of any economic society, especially in developing countries where it is projected to be higher and more volatile.
According to a report on the cost of transportation, the Nigeria Bureau of Statistics highlights the rising cost of commuting in Nigeria.
Rising inflation
In June 2022, the inflation rate increased to 18.60 per cent on a year-on-year basis. This is 0.84 per cent points higher compared to the rate recorded in June 2021, which is 17.75 per cent. This means that the inflation rate increased in June 2022 when compared to the same month in the previous year.
Increases were recorded in all Classification of Individual Consumption by Purpose divisions that yielded the Headline index. On a month-on-month basis, the headline inflation rate increased to 1.82 per cent in June 2022, which is 0.03 per cent higher than the rate recorded in May 2022 (1.78 per cent). The percentage change in the average composite Consumer Price Index for the 12 months ending June 2022 over the average of CPI for the previous 12 months period is 16.54 per cent, showing a 0.62 per cent increase compared to 15.93 per cent recorded in June 2021.
Statistics
The NBS report indicated that the average fare paid by bus commuters for journeys within the city per drop increased by 0.10 per cent, month-on-month, from N582.06 in May 2022 to N582.61 in June 2022. Year-on-year, however, the average fare paid by commuters for bus journeys within the city rose by 42.02 per cent from N410.23 in June 2021 to N582.61 in June 2022.
In the same vein, the average fare paid by commuters for intercity journey rose to N3,662.87 in June 2022, indicating a decline of -0.16 per cent, month-on-month, compared to N3,668.64 in May 2022. Year-on-year, the fare prices rose by 45.21 per cent from N2522.44 in June 2021. While the average fare paid by air passengers for specified routes on a single journey increased by 0.31 per cent, month-on-month, from N55,906.86 in May 2022 to N56,082.64 in June 2022.
Year-on-year, the fare rose by 52.97 per cent (N36,662.57) in June 2021. In another category, the average fare paid by commuters for journeys by motorcycle per drop declined by -0.10 per cent on month-on-month basis from N417.39 in May 2022 to N416.97 in June 2022. Also, year-on-year, the fare rose by 43.20 per cent from N291.18 in June 2021 to N416.97 in June 2022. While the average fare paid for waterways transportation in June 2022 increased to N943.26 showing a growth of 0.17 per cent, month-on-month, from N941.63 in May 2022. Year-on-year, the fare rose by 12.80 per cent from N836.23 in June 2021 to N943.26 in June 2022.
Bottom line
Financial prudence amid inflation and other rising costs is achievable when inflation is understood and utilised prudently.
Understanding inflation gives an insight, which, for instance, reveals that the prices of tangible assets like land and building appreciate. Selling these assets tends to be more profitable during inflation. A certain level of inflation is encouraged or promoted to encourage the people to spend more to some extent, instead of saving, would help individuals and households know when and when not to buy or spend.
If the purchasing power falls over time, then there may be a greater incentive to spend, instead of saving and spending later. A greater incentive to spend, rather than save and spending later, may exist if the purchasing power decreases over time. Spending may rise, which could stimulate economic growth in a nation.
According to the United Nations Department of Economic and Social Affairs, the rise in global commodity prices is particularly hurting poor households, as they spend a much larger share of their income on food.
Analysing the economies of developing nations around the world, the UN noted that the impact of inflation in developing countries, including Nigeria, where it is higher, would leave poor households most affected.
The analysis reads, “The sharp increase in food prices risks pushing millions more into poverty while exacerbating inequality even further.
“Worryingly, surging food inflation could worsen food insecurity in many developing countries that are still struggling with economic shocks from the pandemic.”
Finally, maintaining financial prudence in a country where the purchasing power is low can be done when one’s coat is cut according to their cloth and by understanding how inflation works.
