Is Price Control the solution to inflation in Nigeria?
Nigeria has been grappling with persistently high inflation rates for years, with the situation worsening in recent times. As of July 2024, inflation stands at 34.19%, causing significant hardship for citizens and businesses alike.
In the face of this economic challenge, some have called for the government to implement price controls as a solution.
But is this really the answer to Nigeria’s inflation brouhaha?
Proponents of price control argue that this can provide immediate relief to consumers by capping the prices of essential goods and services, because really why is a baby yam two thousand five hundred Nigerian naira, just about my thumb size, it’s unfair.
However, economists and historical evidence suggest that price controls often do more harm than good.
When prices are stated below market rates (forces of demand and supply), demand typically outstrips supply, leading to shortages.
As the “law abiding” sellers fail to meet demand, black markets emerge, often with even higher prices than before.
Price caps can discourage businesses from investing in production and innovation, because who wants to drop 20 million on production when expected returns due to price control is twenty thousand Nigerian Naira, not me.
Price signals also help guide resource allocation in an economy. It's easy to know there’s a problem when there’s no 500-naira suya in the market.
Implementing and enforcing price controls requires significant government resources and can create opportunities for corruption. This will probably increase prices because sellers now have to “sort” the civil servants that will be on inspection duty.
Instead of price controls, Nigeria could consider more sustainable approaches to tackling inflation:
The Central Bank of Nigeria could tighten monetary policy to reduce money supply and curb inflation.
Government spending and borrowing should be managed with the utmost care. After all, we’re just a humble, impoverished nation. Although, we can’t possibly expect our esteemed leaders to wear Ben10 watches like commoners, can we? Heaven forbid they’re seen without their Rolexes and Patek Philippes! I mean, how else would we know they’re important?
Let’s invest in infrastructure and create a business-friendly environment. Because clearly, our current pothole-ridden, traffic-jammed roads are the pinnacle of efficiency. Investing in infrastructure and creating a business-friendly environment can help increase supply and reduce reliance on imports.
You buy 200-naira worth of pepper in Jos, embark on an epic two-day journey to Lagos, bouncing through craters that would make the moon jealous, burning fuel like it’s going out of style. Now, when you finally reach Lagos — assuming your pepper hasn’t turned to dust — you’re supposed to sell it for 200 naira because… what? The Ooni of Ife decreed it?
Who needs profit margins anyway? It’s not like you have bills to pay or a family to feed.
And if you dare to price your pepper to actually cover your costs and make a living? Well, shame on you, you greedy capitalist!
Tackling corruption, improving power supply, and enhancing security can lower production costs and increase economic efficiency. A kilo of turkey is now 2600, it will probably be 1k if the seller doesn’t have to put on gen 24/7 to keep it frozen. How is price control expected to work here? Unless they are a direct beneficiary of the generators shared during the elections, count them out.
A more stable naira could also help control import-driven inflation, but this is only part of the solution. The concept that “the best form of price control is supply” ties in closely with this idea.
By stabilizing the naira, we can potentially reduce the cost of imports, which is crucial for a country like Nigeria that relies heavily on imported goods. However, the real key to sustainable price stability lies in boosting domestic production.
When we increase local supply, we reduce dependence on imports and create a natural form of price control. This is because abundant supply tends to drive prices down or keep them stable, even without government intervention.
Dearest gentle readers, as we navigate the waters of Nigeria’s economic challenges, we find ourselves at a crossroads not unlike my current soda dilemma. Do we stick with the familiar orange fizz of Fanta-stic policies that have led us here, or do we make a bold leap to the clear, crisp decision-making of Sprite? If you don’t get it, forget about it…*whistles
Much like choosing between these sodas, our economic choices will leave a lasting taste in our mouths. Will we opt for the quick fixes and price controls, only to be left with a sticky residue of unintended consequences? Or will we embrace the refreshments of structural reforms and domestic production boosts, cutting through our problems with utmost clarity?
Stay happy and stay hydrated✌️
