By: Dr. Tope Fasua

Story Highlights
  • There is something called Seller’s Inflation, and this is a situation where firms systematically pass along the inflationary pressures that they face to the poor final consumer as they occur.

Developing nations do themselves a huge disfavor and injustice by not expanding their analysis and actions with regard to tackling inflation. For some reasons, economic managers in many of such countries stick ardently to the manipulation of interest rates (read interest rate hikes) as sure kryptonite in their bids to destroy the Superman called inflation. Not even the fact that such actions over time have not led to the right results are slowing them down. And there is another downside; raising interest rates spurs economic recessions because what it does very effectively is to slow down economic activities by putting borrowing companies in trouble and discouraging borrowing as interest rates rise. Raising rates also encourage more people with surplus funds to park excess money in banks to earn interest rather than invest in new ventures. Companies tend to lay off staff and shrink operations whenever interest rates rise. Developing countries like Nigeria can ill-afford to increase unemployment rates – by whatever metrics it is measured. But this is exactly what we do.


I am writing today to again bring our attention to the fact that there is new thinking around inflation management. And established nations are already thinking in this direction. rather than merely raising interest rates. To this effect, inflation has receded in many of these countries (the US has been able to depress inflation to 3%, the EU to 5.3% and the UK at 6.8%, while Nigeria still battles at 24.08% as I type this.


Again, I bring to us the work of Isabella Weber. Simon Grothe, in a recent article titled “Isabella Weber Has Neoliberal Economists Running Scared”, has called attention to a truism – that economic managers need to look at the impact of corporate profits on inflation. In Nigeria, one may add that there is a need to consider the actions of middlemen who may take undue advantage of final consumers. In general, one may conclude that this is the time for economic managers to be more empirical, more analytical, more active around tackling inflation. Sitting on our hands waiting for inflation to recede – and it will certainly not as a result of increases in interest rates – will not work. And of course, this means that we have left inflation management to central banks. Inflation is often not just a monetary policy. We need other models. The fact that central banks stepped up to commit to inflation targeting does not mean they alone can do it. Empirically, it is obvious that instruments of monetary policy have been blunt when used for inflation management – especially in developing countries. I believe that this is an obvious point but let’s take some explanation from Dr Weber.


There is something called Seller’s Inflation, and this is a situation where firms systematically pass along the inflationary pressures that they face to the poor final consumer as they occur. This was noticed as a fallout of the Covid-19 pandemic, but chances are that it is habitual. Chances are also that the pandemic, the fear, the lockdowns have emboldened businesses as they have seen that they can get away with a lot of things. In countries like Nigeria where the consumer is even more powerless and voiceless, beaten down by the worst pangs of poverty, I believe it is trite that we do a comprehensive study of corporate profits, but not only that that we find ways of looking at the activities of middlemen. For example, there are middlemen in the agric space that buy directly from the farmgate. Some are doing that under the guise of being commodity brokers or exchanges. The Buhari administration tried to enact a law protecting poor farmers from these types of guys by stipulating what volumes could be bought at the farmgate. The idea has not taken root and I have seen the usual suspects poohpoohing Bola Tinubu’s idea of returning commodity boards (who could organize themselves and stand up to these smart alecs). So, in a place like Nigeria, we have to worry about corporate exploitation AND the many shenanigans of smaller entities who gouge prices and make life tougher for the poorest amongst us. If the USA and Europe can do this, why can’t we?  Grohe wrote that the “International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD), and the central banks of the United States (the Federal Reserve) and the Eurozone (the European Central Bank) have published multiple studies addressing Weber’s analysis”.



Quoting Weber/Grothe, the gradual decay occurs as below:

  1. Phase one: stability. It’s another day under capitalism. People go to work, make and sell things, their bosses keep some as profit and pay a wage from the rest.
  2. Phase two: impulse. Real shortages in key commodities, the cost of which enter the production of many others, lead to a price shock.
  3. Phase three: pass-through. Firms protect their profit margins from the increased cost of inputs by raising their own prices. Of course, given that capitalist enterprises are hardly charities, they try their utmost to pass along the increased costs to their clientele. Like a hot potato, the price increase is passed from company to company until it ends up in the supermarket as a higher price tag. How do workers get rid of the hot potato? They demand higher wages, in turn, to stabilize their purchasing power in real terms.
  4. Phase four: conflict. Employees fight for higher wages to compensate for losses in purchasing power, which means an increase in costs for companies, which in turn increase prices. Yet by no means is this a conflict on a level playing field, since employees are merely trying to compensate for previous losses in their real wage.


The above analogy is how inflation feeds on itself and when companies begin to pass on more than the increased cost of inflation on them, they could spur a vicious cycle that leads to a spiral of price increases, higher poverty, lower purchasing power, layoffs and unemployment, unsafe societies, and eventual collapse. Developed countries like the US have learnt this for long. They have the experience and the safeguards. They have much better regulation of most of their industries. In Nigeria, we don’t have these. We are therefore far more vulnerable to seller’s inflation.


There’s even another psychology to this. Hear Grothe:

“Moreover, companies can more easily enforce price increases with their customers when the latter are accustomed to hearing about new cost shocks and growing inflationary pressures every day in the media. Some in the American press have labeled this dynamic “excuseflation.” Legendarily, the head of Iron Mountain related in an earnings call in 2018 that he would pray for inflation every day, because it allowed him to push through higher profit rates. He added that his prayer for inflation was, for him, like a “rain dance.”” (This means that he prays for inflation the way traditionalists pray to the god of rain in a drought).


The argument in these ‘smart’ countries have since shifted away from interest rates, or ballooning money supply as a result of money printing – e.g for shocks like COVID-19 – and to the supply side. Economists are now calling for more attention on price-setting mechanics (do we know how prices are set for anything in Nigeria? How scientific? How much information?), and windfall profit taxes (even though this is after the fact).  They have moved away from making a devil out of government expenditure, which are often critical… and remain so for a country like ours.


The ECB president Christine Lagarde recently alluded to the inefficacy of interest rates increases in managing inflation. See She also proffered changes in antitrust laws to reduce incidences of price gouging. See https://www.cnbc.com/2023/08/26/ecbs-lagarde-says-interest-rates-to-stay-high-as-long-as-needed-to-defeat-inflation.html. IMF director Gita Gopinath stated in June that profit margins must sink in order to combat inflation, and she encouraged companies to absorb wage increases rather than pass them on to final consumers. Sounds almost socialist, doesn’t it? But this contrarian thinking is what the times require, in my humble opinion.  See https://www.imf.org/en/Blogs/Articles/2023/06/26/europes-inflation-outlook-depends-on-how-corporate-profits-absorb-wage-gains.


Then there’s the issue of wage increases. The Nigerian Labour Congress has demanded for a minimum wage of N250,000 only. This is the wage that they propose should be paid to the cleaner and other casual workers – at least for those who work for the government at every level. As egregious as that sounds on the surface, labour leaders are quick to remind us that minimum wage in Nigeria – up to the early 1980s – was an equivalent of $250. Today, at N30,000, it is less that $35 and many states have refused to pay! Still, where will the vast majority of employers in Nigeria, who are in the private sector find N250,000 as minimum wage? Even N100,000 is unaffordable, though we must now think about raising wages across the board – even for artisans (yes, they need a much better bargain but usually don’t have representations).


Nigeria is being called to a higher level of thinking at these times. The reforms of the Tinubu administration so far, is a call for serious structural adjustment and an opportunity for this economy to rise from the usual mediocrity that we have known over the years. However, the strident calls for higher wages across the board, is from those who are lucky to have jobs. The vast majority of unemployed, underemployed, hustlers, and casualized workers have no such luxury. Yet, they make up 85% of Nigeria’s working population according to our last labour statistics! To make matters worse, wage increases is deployed by companies against the final consume as higher wage expenses are simply and easily added to the cost of goods and services and the cost passed on to hapless consumers – often with a tidy premium. Continued demands for higher wages – where successful – leads to widening income disparities especially where nobody gets the back of artisans and social security is not robust in a society.


Let me reiterate the conclusions of Thomas Pickety in his 2011 book ‘Capital in the 21st Century’. Poring over data of more than 200 years, the Nobel Laureate posited that rewards for labour have basically stagnated over a period of more than one century, while the reward for capital has simply skyrocketed. This has also been amplified and complicated by the substitution of labour by capital, through technology. We have seen the systematic digitization of everything. Most offices and factories now need perhaps a fifth of their staff strength of five, ten years ago. Covid-19 made it a lot worse. Humans have been replaced by machines. Artificial Intelligence and Machine Learning keeps firing on. ChatGPT can now write your CV in 5 seconds, and a proper business proposal in 30 seconds. Who needs a human being? And because of that – for countries like Nigeria – millions more of our people have become desperately poor. We cannot therefore toe the same line as developed countries. Our economy cannot be analysed same as theirs and we cannot be administered with the same elixirs. This is not also a time to lock down government expenditure in the name of targeting inflation. Ours is an economy in dire need of growth and development. Almost every sector needs to be incentivized and injected with fillip for more productivity. Interest rate increases will certainly not work for us. Now is the time to think differently.


May I take this opportunity to reiterate some of the other strategies I had pushed in an earlier article in May 2023 regarding other ideas with slowing down inflation:

  1. Moral suasion and logic – Government must speak to inflation and persuade sellers to slow down on price increase so as to prevent an inflation spiral.
  2. Arbitrary wage increases must be discouraged even though with recent events a general wage increase has become a fait accompli so as to reduce poverty.
  3. Target food inflation (the chief driver of our inflation in Nigeria), by direct provision of rural infrastructure to aid farmers and reduce their costs.
  4. Better regulate the activities of middlemen especially in the agric sector, as part of Tinubu administration strategy on food security. Also hasten institution of commodity boards and exchanges and the policy limiting how much can be bought at the farmgate (as is done in South Africa among others).
  5. Better administration around government revenues will help haul in more money for infrastructure and close income disparity gap. This will also reduce inflation as less money is available for frivolous purchases. Also, better fiscal discipline will help greatly for its signaling effect on the general ecoomy.
  6. Effective policies around foreign exchange and importation. Citizens should be encouraged to buy local and this must start from the top. This will help stave off ‘imported inflation’ to a great extent, and keep the money ‘within the family’ – circulation within Nigeria.
  7. Manage and ‘reduce’ expectations by media and public engagements that cleverly inform the public that things will get better.
  8. Promote work, savings, and investments – Increased labor supply, capital supply, productivity, and personal savings can help to reduce inflationary pressures. This is because the focus will be on general economic growth – a case of everybody getting lifted by the rising tide.
  9. Government must also do what it can to influence general price levels within its purview. This includes helping to lower energy costs by promoting alternative sources of efficient energy. Even in the US and other developed nations, energy cost is one of those costs that permeate into every other price increase, and a good excuse for spiking inflation. It needs to be wrestled down. Further, the government must urgently deal with insecurity which adds considerably to the final prices that consumers pay for everything. Reducing tariffs on essentials, promoting local production of basic essentials, and import substitution as well as a focus on infrastructure – like roads, rail systems and inland waterways – helps to reduce cost of transportation of people and goods, and thus sellers have fewer excuses to keep increasing prices in the name of recovering costs. Also, communication has been inefficient. Governments usually forget to link infrastructure to the lowering of inflation. They forget to ask citizens to take a medium to long-term view of their efforts as part of the expectation management strategy.



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