Inflation: will prices ever go back down?

Jul 14, 2022|Dumebi Oluwole

The law of gravity—what goes up must come down—applies to everything but prices in Nigeria. Every time the NBS releases inflation numbers, we have new evidence that prices of goods and services are not just rising but also at a faster pace. When inflation rises, it basically means that your money cannot go as far as it used to.
 

Key takeaways:

  • Inflation is now a global problem. Almost all countries are experiencing an increase in inflation, courtesy of rising food and energy prices stemming from the Russian-Ukraine war. Global inflation is projected to climb to 7.4% this year from 4.7% in 2021.

  • Nigeria is no longer an outlier in the global inflation dynamics. However, our inflation issues began even before the Covid-19 pandemic in 2020. But when prices rise, especially food items, they hardly fall back to their previous levels, indicating price stickiness. 

  • Although, fast-falling prices are not the solution to Nigeria’s problem of sustained price stickiness. We need adequate monetary policies that will not only slow the rate of increase in prices but also anchor inflation expectations. The CBN needs to restore confidence in its ability to adopt monetary policy tools and curb inflation effectively. 


The annoying thing is that when prices of things like food rise, they never seem to fall. In today’s world, where the cost of nearly every product has risen with near stagnant wages, the question of why prices rise and never seem to fall has been top of mind.

This is why I wasn't surprised to see a tweet asking, “how come prices don't fall in Nigeria?” While I understood the sentiment as a Nigerian consumer, as an economist, I knew the answer won’t be so clear cut.

I’d even go as far as positing a reworded question: “when prices increase, why don’t they return to former levels?” To provide an answer, we will look through the lenses of economic theory and real-life applications.

Let’s dive in.

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