With analysts already projecting that 2022 will not only be a spending year, it is also expected to see the implementations of other key policies that would further trigger inflationary pressures; BLESSING ANARO writes.
Year 2022 will be a year of spending by politicians to position themselves ahead of the 2023 general elections. Many projects will be carried out or completed to sway unsuspecting voters.
That is not all, the central government may carry out its ‘threat’ to remove fuel subsidies. That will give birth to a serious spike in the prices of commodities, particularly food. Even the electricity tariffs hike will cooperate with other factors to ensure inflation regains full consciousness from the lull it experienced in 2021.
Even, usual advocate for economic reforms, the World Bank is sounding a warning not to hike electricity tariffs at this time in point.
But will the government – both central and states listen, with just a few moments left until the final whistle is sounded for the end of various tenures?
Walking freely
It will be very dire if inflation is allowed to walk freely in the year 2022. It was only restrained by what economists call base-year effect, thus giving government officials boldness to boast about receding inflation, while millions of ‘normal’ Nigerians are wondering what the office of statistics is talking about when prices are still high.
In 2021, inflation returned. After a year-long debate, nobody can any longer deny this. Next year, we will discover whether it’s here to stay and how much bitter economic medicine will be required to quell it, analysts at Bloomberg said.
The National Coordinator, Independent Shareholders Association of Nigeria (ISAN) Anthony Omojola said that Nigerians should expect higher inflation in 2022 as the country moves into an election period.
“But as is widely known, during election years there is normally more money in circulation and if it is not well managed it could lead to ardent inflation which is inimical to the survival of the poor”, he said recently.
The power tariff question
The World Bank probably had all these in mind when it cautioned Nigeria and different emerging economies in opposition to elevating electrical energy tariffs.
The Financial institution, in its newest Commodity Markets Outlook forecast, argued that such steps will push inflation in 2022, including that costs of electrical energy, which peaked at 80 per cent this 12 months in comparison with 2020, will stay excessive in subsequent 12 months. Nevertheless, costs will begin to decline within the second half of the 12 months as constraints ease.
It mentioned international inflationary pressures and probably shifting financial development to energy-exporting international locations from energy-importing ones will outline the brand new 12 months.
Ayhan Kose, chief economist and director of the World Financial institution’s Prospects Group, mentioned the surge in power costs poses vital near-term dangers to international inflation and, if sustained, might additionally weigh on development in energy-importing international locations.
The Financial institution added that the sharp rebound in commodity costs is popping out to be extra pronounced than beforehand projected. Latest volatility in costs might complicate coverage decisions as international locations get better from the final 12 months of international recession, it added.
In line with the financial institution, non-energy costs, together with agriculture and metals, would lower in 2022, following sturdy good points these 12 months.
Within the outgoing 12 months, some commodity costs rose to (or exceeded) ranges not seen because of the spike of 2011.
The Financial institution stated that pure gasoline and coal costs reached record high amid constraints and rebounding demand for electrical energy, though they’re anticipated to say no in 2022 as demand eases and supply improves.
Nevertheless, extra value spikes might happen within the near-term amid very low inventories and chronic shortages.
Upside risk
The Financial institution has projected the worth of a barrel of crude oil at $74 in 2022 as oil demand strengthens and reaches pre-pandemic ranges.
Using crude oil as an alternative choice to pure gasoline presents a serious upside risk to the demand outlook, though increased power costs might begin to weigh on international development.
As international development softens and supply disruptions are resolved, steel costs are forecast to fall five per cent in 2022, after rising by an estimated 48 per cent in 2021.
Following a projected 22 per cent enhancement in 2021, agricultural costs are anticipated to say no modestly in subsequent 12 months as provided circumstances enhance and power costs stabilise.
John Baffes, senior economist within the World Financial institution’s Prospects Group, mentioned excessive pure gasoline and coal costs are impacting the manufacturing of different commodities and pose an upside danger to cost forecasts.
Baffes mentioned: “Fertilizer manufacturing has been curtailed by increased pure gasoline and coal costs, and better fertilizer costs have been pushing up enter prices for key meals crops. The manufacturing of some metals equivalent to aluminum and zinc has been lowered resulting from excessive power prices as effectively.”
The Financial institution explained that the last 12 months have highlighted how altering climate patterns resulting from local weather change are a rising danger to power markets, affecting each demand and supply.
From a power transition perspective, the financial institution raised considerations concerning the intermittent nature of renewable power and spotlight the necessity for dependable base-load and backup electrical energy era.
They said: “This must be from low-carbon sources, equivalent to hydropower or nuclear energy, or from new strategies of storing renewable energy.
“On the same time, the surge in pure gasoline and coal costs has made photovoltaic and wind energy much more aggressive as a substitute power supply. International locations can profit from accelerating the set up of renewable power and decreasing their dependency on fossil fuels.”
The report noted that forecasts are topic to substantial dangers, together with hostile climate, the uneven COVID-19 restoration, the specter of extra outbreaks, supply-chain disruptions, and environmental insurance policies.
Moreover, increased meals costs, together with the current spike in power prices, are pushing meal value inflation up and elevating food-security considerations in a number of developing economies.
As the worldwide shift from rural to city residing continues, the report’s particular focus explores the influence of urbanization on commodity demand. Though cities are sometimes related to elevated demand for power commodities (and therefore greenhouse gasoline emissions), the report additionally discovered that high-density cities, notably in superior economies, can have decreased per capita power demand than low-density cities.
It mentioned the share of individuals residing in city areas is rising, these outcomes spotlight the necessity for city planning to maximise the helpful parts of cities and mitigate their unfavorable impacts.
The Financial institution, famous that cities are on the forefront of local weather change, and strategic planning notably for transport hyperlinks, may help scale back their useful resource consumption and, crucially, their greenhouse gasoline emissions.
