There are indications that cost of living will remain high in the near term as money supply and currency in circulation (CIC) surge simultaneously to all-time high in the economy.
Experts describe cost of living as expenses required to maintain a certain level of living while standard of living refers to the level of comfort, material goods and necessities available to a person or community.
Looking ahead, analysts from FBNQuest, in an emailed note, stated that the imbalance between the escalating money supply and the dwindling food and oil production will likely persist, further eroding consumer purchasing power and escalating living costs, particularly for low-income households.
According to them, Nigeria’s inflation may worsen as the country’s money supply (M3), which measures the total amount of money in an economy, reached an all-time high of N101.34 million in June 2024.
This is according to recent data from the Central Bank of Nigeria, (CBN).
The figure showed that M3 increased by 56.15 percent to N101.34 million in June 2024 from N64.90 trillion recorded in the corresponding period of June 2023.
According to financial analysts, when the money supply increases, it can lead to higher inflation.
Also, data from the CBN shows that the total CIC increased to an all-time high of N4.1 trillion, marking a 56 percent year-on-year (y-o-y) increase compared with N2.6 trillion in July 2023.
The CBN’s data also reveals that 94 percent (N3.8 trillion) of the currency in circulation is cash outside the banking system. While the increase in CIC may suggest improved economic activity in nominal terms and higher consumer spending, it also highlights inflation risk, particularly if money supply growth exceeds real output growth.
June’s CIC data indicates continued expansion in liquidity despite the Monetary Policy Committee’s (MPC) hawkish measures to tighten liquidity and control inflation.
Also, the latest data from the Nigerian Bureau of Statistics (NBS) shows an inflation rate of 34.2 percent in June 2024, up from 22.8 percent in June 2023.
Food inflation, which stood at 40.9 percent in June, continues to be the primary driver for the surge in headline inflation.
To accurately assess the effect of food inflation on households, the NBS’s Cost of a Healthy Diet (CoHD) metric calculates the minimum income required for households to afford a healthy diet.
FBNQuest noted that the national average CoHD rose to N1,241 in June, up 19.2 percent m/m from N1,041 in May and 45.0 percent year-to-date (YTD) from N858 in January.
“At the zonal level, the South-West Zone had the highest average CoHD at N1,545 per day, up from N1,198 in May. In contrast, the North-West Zone reported the lowest average CoHD at N956 per day, compared to N787 in May.
“At the state level, Ekiti State had the highest average CoHD at N1,640, up from N1,145. Conversely, Katsina State reported the lowest average CoHD at N878 per day, down from N907 in May.
“The CoHD by food group revealed that animal-source foods were the most expensive, at N433 per day, up from N374 in May. In contrast, legumes were cheaper, at N83 per day, compared to N77 per day,” it stated.
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