Inflation, that pervasive economic force characteriwed by the relentless rise in the prices of goods and services over time, has long been a global concern. Former U.S. President Ronald Reagan famously described it as “the greatest enemy of all the people and of our hopes for economic growth,” perhaps because of its silent, insidious nature that erodes wealth indiscriminately, irrespective of one’s social standing or economic status. This powerful statement largely amplified the strong monetarist principles championed by Professor Milton Friedman, whose ideas became widely accepted wisdom across the world.
And for good reason. The global push for fiscalism advocated by Maynard Keynes, which posited that governments should intervene to rescue economies during downturns, had seen its influence wane. Post-World War II Britain, along with many other European nations, found itself in a state of disarray, economically devastated by the conflict. In such circumstances, taking ideological guidance from Keynes seemed impractical, as no European government possessed the fiscal capacity to spend its way out of the crisis; instead, they all looked to the United States for a bailout through the Marshall Plan.
Professor Friedman, a leading figure of the esteemed Chicago School of Thought and an incredibly persuasive economist whose theories have shaped economic discourse for decades, emphatically asserted that “inflation is always and everywhere a monetary phenomenon.” By this, he meant that *sustained* inflation is solely triggered by the central bank’s expansion of the money supply – and nothing else. According to his theories, inflation manifests only when the quantity of money in circulation grows faster than the economy’s output. This position quickly solidified a global understanding that managing inflation was primarily the domain of central banks.
In response, central banks globally embraced the responsibility of inflation management, often employing strategies like inflation targeting, with interest rates as their primary instrument. The fundamental understanding is that inflation and interest rates share an inverse relationship. If a central bank aims to curb inflation, its approach involves increasing interest rates within the economy, typically by raising policy rates that commercial, merchant, and investment banks then follow. Conversely, to stimulate economic growth, a central bank can reduce interest rates, encouraging borrowing and expansion among businesses, thereby fostering job creation and economic prosperity.
Friedman further argued that an excess of money chasing too few goods inevitably diminishes the value of currency, leading to higher prices. He contended that factors such as oil shortages, disruptions in supply chains, or wage increases (often termed ‘cost-push’ factors) might alter relative prices, but they cannot instigate a broad, sustained increase across all prices unless supported by an expansion of the money supply. Friedman’s focus remained on the long-term, where he believed the link between money supply and price levels was most pronounced, rather than on transient price fluctuations caused by temporary shocks.
However, ‘Tope Fasua, Special Adviser to the President on Economic Matters, points out a few perceived flaws in Friedman’s intricate cogitations. He argues that an exclusive focus on the long run can be detrimental, stating, “The focus on the long run leaves us all dead.” While acknowledging the agreed fact that inflation inflicts pain and erodes wealth, Fasua stresses the critical importance of the short run. He questions the arbitrary definition of “long run,” suggesting that greater emphasis should be placed on short and medium-term inflation, as the long run is merely a composite of multiple short-run periods. Another concern is Friedman’s understanding of money supply, which appeared fixed on the roles of government and the central bank during his era. Contemporary economic thought, however, reveals that a substantial portion of money creation is attributed to commercial banks. Fasua referenced his earlier writings on the three theories of banking – financial intermediation, fractional reserve, and money creation – delving into Richard Weiner’s modern hypothesis that banks generate a staggering 97 percent of the money supply, not central banks, simply by granting credits that subsequently create new deposits. While the exact proportion may be debatable, the capacity of banks to digitally create credit and its consequential impact on expanding the money supply must be acknowledged.
Nigeria, in 2024, endured one of its most severe inflationary periods in decades, with headline inflation soaring to 34.80 per cent by year-end. These aggregate figures, however, mask the immense hardship and pain that inflation inflicted upon Nigerians, echoing the global struggles with rising costs between 2021 and 2023. During this period, particularly following the outbreak of the Russia-Ukraine War and subsequent energy price volatility, stable economies like the US and UK experienced double-digit inflation levels reminiscent of their post-World War II struggles, sparking major cost of living crises. In less mature economies worldwide, the situation was even direr: Turkey recorded 75 per cent; Argentina, a staggering 300 per cent; Ghana, 55 per cent; and both Egypt and Ethiopia, 40 per cent. Nigeria’s food inflation climbed as high as 50 per cent, with specific food items witnessing price increases of up to 300 per cent. It’s important to note that most Nigerians allocate their earnings to basic necessities: food, shelter, transport, clothing, medicine, and some social engagements. While Nigerians are notably robust in their social spending – encompassing commitments to extended family, friends, and various dependents, alongside world-record expenditures on weekend parties, grand ‘owambes’, and a burgeoning affinity for upscale lounges – these essential expenses consume the bulk of most citizens’ incomes. The peculiar characteristic of these listed items is their existence within what is known as ‘sellers’ markets.’ People must eat, find accommodation, commute, and wear clothes; consequently, they purchase at whatever prices are set, allowing sellers to dictate market dynamics. This situation leaves ordinary Nigerians vulnerable to exploitation, profiteering, and severe price gouging.
In late 2023, Fasua painstakingly drew attention to the concept of ‘Sellers’ Inflation,’ popularised by Professor Isabella Weber of the University of Massachusetts. This concept aligns with observations of periods marked by stagflation, shrinkflation (where producers reduce product volumes or quality while maintaining or increasing prices), and skimpflation. Hard-pressed Nigerians can readily identify numerous goods that have diminished in size or quality, even as their prices have skyrocketed. Professor Weber’s research, using the US as a case study, highlighted an additional challenge for economists tackling global inflation: many Fast-Moving Consumer Goods (FMCG) manufacturers often increased prices or reduced product volumes/quality primarily due to their pursuit of profit maximisation, rather than solely due to increased production costs. In ‘sellers’ markets,’ it becomes remarkably easy to layer new costs with additional premiums, which the final consumer is compelled to bear, ensuring shareholders continue to reap significant profits. This underscores a profound need for robust consumer protection mechanisms.
This phenomenon is regularly observed across Nigeria. An ongoing concern surrounding Jet A1 aviation fuel prices, for instance, unveiled a peculiar Nigerian problem rooted in an excessive number of middlemen within the supply chain. Furthermore, following the escalation of the US/Israel/Iran conflict, the percentage hike in Premium Motor Spirit (PMS) prices in Nigeria became arguably the highest globally, a challenge the nation continues to grapple with.
Drawing lessons from the experiences of 2023 and 2024, Fasua posits that beyond the high interest rates maintained by the Central Bank of Nigeria (CBN) as an anti-inflationary measure, other rather unconventional approaches ultimately aided in taming inflation. These interventions, while not explicitly detailed in economic textbooks, proved effective and contextually relevant for Nigeria’s unique circumstances and stage of development. These include (though not explicitly listed in the original text after this sentence, the context implies measures like market interventions, consumer protection actions, and supply-side considerations).
Indeed, while some of these factors might not be found verbatim in standard economic textbooks, they represent valid economic responses that contributed to the price stability observed in 2025 – a period when even farmers reportedly lamented losses due to consistently crashing food prices. This, Fasua stresses, is “our own reality.” While some economists might frown upon the activities of Nigeria’s Federal Competition and Consumer Protection Commission (FCCPC), it is crucial to remind them that every state in the US, the global bastion of Capitalism, enforces its own stringent anti-price gouging laws. For instance, after Hurricane Katrina in 2005, John Shepperson was arrested and jailed for exploiting the misery of Louisiana residents who lost power, by doubling generator prices between Kentucky and Louisiana. This underscores the established principle that every country must address its peculiar situation, drawing upon its unique cultures, customs, and influences that shape its people’s behaviour. Those who preach the ideal of perfect markets should consider why Canada, just a few years ago, implemented a freeze on property markets for foreign buyers, particularly targeting Nigerians.
In conclusion, ‘Tope Fasua articulates pressing concerns about Nigeria’s transition into an inflation-targeting regime. He questions whether this approach will necessitate a prolonged period of high interest rates, which inevitably stifles businesses and impedes economic growth. He seeks to identify a “sweet spot” – a balance where interest rates can be adjusted without triggering further inflation, especially considering the complex array of peculiarities he has outlined. Fasua challenges the Monetary Policy Committee (MPC) to critically assess these concerns and weigh them against the potential pass-through effects of reduced interest rates, to determine the most beneficial path forward. The undeniable fact remains that short-run inflation drivers – which, cumulatively, become long-run inflation drivers – and which Friedman’s analysis largely overlooked, hold greater significance for Nigeria.
Indeed, factors such as fluctuating fuel prices, short-term inefficiencies, scarcities, market distortions, droughts, floods, and critically, insecurity and population displacements, are the primary contributors to Nigeria’s inflation. These issues resonate far more deeply with the nation than abstract long-term money supply considerations, representing challenges that, while discussed specifically for Nigeria, are often characteristic of developing countries. A major concern Fasua highlights about Nigeria is the prevailing lack of understanding regarding gradual price increases; instead, prices tend to surge in drastic leaps. It is uncommon for the average Nigerian trader to implement a mere 10 or 15 per cent price increase; rather, increases often start from 50 per cent, with 100 per cent overnight price hikes becoming standard practice during periods of scarcity. These sudden increases often become permanent, particularly within the nexus of products dominating sellers’ markets. Fasua suggests that perhaps a national conference or two dedicated to these crucial matters is warranted.
‘Tope Fasua is the Special Adviser to the President on Economic Matters.
Originally sourced from Premium Times. This article has been rewritten for our readers.
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