What do you believe is the single most important factor driving up the cost of living in Nigeria?

With the recent salary increment agreed by the federal government and the labor union, the Nigerian economy may experience increased inflation. Seventy thousand Naira minimum wage will not address the level of hardship experienced by the Nigerian worker but once the volume hits the market without a corresponding increase in productivity, high inflation rate will persist.

Imagine yourself walking a tightrope. On one side, a fierce wind threatens to topple you – that's inflation, eroding your purchasing power and making your life a struggle. On the other, a seemingly helpful hand reaches out, offering a raise – a salary increment.

Also Read: INFLATION, THE SILENT MONSTER

Is it truly a helping hand, or might it just tip you off balance? In Nigeria, the relationship between salary increments and inflation is a complex tightrope walk, with both potential benefits and significant risks.

The big question is, since all Nigerians are affected by the removal of subsidy and devaluation of the Naira, what percentage of Nigerians will benefit from the salary increment? What is the guarantee that state governors and organized private sector will abide by the law?

Nigeria, Africa's largest economy, faces numerous challenges. While boasting abundant natural resources, the country grapples with high unemployment, infrastructure deficiencies, corruption in high and low places, and a reliance on oil exports. This dependence makes the economy vulnerable to fluctuations in global oil prices.

With the cost of living steadily rising, Nigerians are understandably eager for salary increases. They believe an increase in salary translate to a better standard of living, improved access to food and healthcare, and a sense of financial security. It can also boost morale and productivity among workers.

However, the story doesn't end there. Salary increments without a corresponding increase in productivity can fuel inflation, a situation where prices of goods and services rise faster than wages. This means that even with a raise, you might not be able to afford the same things you could before. The purchasing power of your money diminishes, and the initial benefit of the raise gets swallowed by inflation.

How does increment in salary contribute to inflation?

When a large number of workers receive higher salaries, it creates an increase in aggregate demand. Imagine everyone in the market suddenly having more money to spend. Businesses see a surge in demand for their goods and services.

To the average market woman in mile 12 market, salary has been increased and she must increase the price of her wares to get a share of the cookie, same for the landlord in Festac town and a transporter along Oshodi express route.

Now, here's the crux of the issue: if the supply of those goods and services can't keep up with the rising demand, prices start to climb. Businesses might raise prices to maintain profit margins, or they might struggle to meet the demand with existing resources, leading to shortages and further price increases.

This creates a vicious cycle – the wage-price spiral. Workers, seeing their purchasing power decline due to inflation, demand even higher salaries to maintain their standard of living. Businesses, facing higher labor costs, raise their prices again. The cycle continues, pushing inflation further and further upwards.

The minimum wage was increased by President Olusegun Obasanjo to #5,500 in 2000, It was later increased to #18,000 under President Goodluck Jonathan and #30,000 during President Buhari.

Has the living standard of the Nigerian worker improved with these increments?

Salary increases for government employees can also have a significant impact. The government needs to find the funds to finance this increment. This can lead to increased government spending, which in turn can put pressure on the national budget and potentially contribute to inflation through deficit spending (printing more money through ways and means)

As inflation rises, the value of the Naira decreases. The same amount of money buys you less and less. This disproportionately affects low-income earners who spend a larger portion of their income on food and basic necessities. Imagine a family struggling to put food on the table – inflation makes that struggle even harder.

High inflation creates uncertainty for businesses. They become hesitant to invest in new ventures or expand existing ones, fearing that rising costs and eroding profits will make their investments unprofitable. This stagnation in investment hinders economic growth and job creation, further exacerbating the problem.

Inflation also widens the gap between the rich and the poor. Wealthier individuals often have assets that appreciate in value during inflation, such as stocks and real estate. This helps them maintain their purchasing power. However, low-income earners, whose wealth is primarily tied to cash, see their savings erode and their standard of living plummet. This widens the income gap and creates social unrest.

High inflation can lead to a devaluation of the Naira. This means the Naira loses its value compared to other currencies. This makes imports more expensive and weakens Nigeria's position in international trade.

The economic hardship caused by inflation can lead to social unrest. Nigerian youths across tribes and religion are mobilizing for a general strike on 29th of July, next Thursday.

The harsh Nigerian business environment and bad economy has led to strikes by the labour unions and prospective protests, or even violence. This instability can deter foreign investment and hinder economic development. Additionally, high inflation can erode public trust in the government, potentially leading to political instability.

Finally, the key to breaking the cycle of salary increases fueling inflation lies in boosting productivity. If businesses can produce more goods and services with the same or fewer resources, they can meet the increased demand without resorting to price hikes. This requires investments in education, training, and infrastructure to create a more skilled workforce.

The government also plays a crucial role. Maintaining fiscal discipline by controlling government spending and avoiding excessive deficit spending helps curb inflationary pressures. Additionally, the Central Bank of Nigeria (CBN) needs to implement effective monetary policy tools to manage inflation. This might involve raising interest rates to discourage borrowing and spending, thus controlling the money supply in the economy.

Nigeria's heavy reliance on oil exports makes it vulnerable to external shocks. Diversifying the economy by promoting other sectors like agriculture, manufacturing, and tourism can create new jobs, reduce dependence on oil, and foster sustainable growth.