By Michael Chibuzo
The global economic landscape has faced considerable turmoil in the past couple of years. The covid-19 global pandemic as well as the Ukraine war has impacted negatively on many countries including the highly developed economies. Many have slipped into recessions, others are battling with slow GDP growth rate while some are battling rising inflation.
In the past one year, the two developing economies of Argentina and Nigeria have had to pass through a baptism of inflationary fire partly exacerbated by decades of unsustainable economic policies bothering mostly on consumer subsidies as well as excessive government spending far beyond revenue inflows. Nigeria and Argentina due to their similar economic headaches, particularly inflation, have recently become subject of comparisons by political and economic analysts in Nigeria and elsewhere.
The Argentina vs Nigeria inflation comparison has however taken a partisan route with a lot of distortion of facts or outright ignorance of the realities. It is for this reason that I want to give a brief insight into the Argentine and Nigerian high inflation headache.
INFLATION IN ARGENTINA
In Argentina, the baseline point for measuring inflation is the Consumer Price Index (CPI), which measures the average change in the prices of a basket of goods and services over time, with the base year being used as a reference point for comparison. In Argentina, the base year for the CPI is currently 2018. Consumer Price Index (CPI) in Argentina increased to 4825.79 points in February from 4261.53 points in January of 2024.
This means that the change in inflation or increase in inflation rate in Argentina between the January and February consumer price index is 13.2%. Let’s do a little mathematics to fully understand this figure:
January CPI = 4261.53
February CPI = 4825.79
CPI increase between January and February: 4825.79 – 4261.53 = 564.26
Percentage change in CPI for February:
(564/4261.53) x 100 = 13.24%
What this means in essence is that the consumer price index of Argentina for February, 2024 increased by 13.24% of the January figure of 4261.53 points. This is what is called the month-to-month inflation rate.
There is also the year-on-year inflation rate, which compares the CPI in a given month with the CPI in the same month of the previous year. For Argentina, the year-on-year inflation rate for February 2024 is just over 276%. Let’s show how this figure is arrived at:
CPI for February 2023 = 1282 points
CPI for February 2024 = 4825.79 points
Diff. b/w Feb. 2023 and Feb. 2024 CPI figures: 4825.79 – 1282 = 3543.79
Percentage increase in CPI b/w Feb. 2023 and Feb. 2024:
(3543.79/1282) x 100 = 276.4%
When you look at the consumer basket figures of Argentina, one of the parameters used in CPI calculations, it gives you a clearer picture of the year-on-year inflation rate. The exact basket of consumer goods or services that cost, 57,302 peso in February 2023, now costs 223,593 peso. I would touch briefly on what led to this high rise in Argentina’s consumer price index over this period later in this article.
INFLATION IN NIGERIA
For Nigeria’s consumer price index, same calculations as I outlined before are also used by the Nigerian Bureau of Statistics (NBS) in computing the headline inflation rate month-on-month or year-on-year. The NBS in its Consumer Price Index report for February 2024 said that in February 2024, the CPI increased by 31.7% when compared to the CPI figure of February 2023.
Let us do another series of mathematical calculations:
From the NBS report, CPI for February 2023 = 517.4; CPI for February 2024 = 681.4
Diff. b/w Feb. 2023 and Feb. 2024 CPI figures: 681.4 – 517.4 = 164 points
Percentage increase in CPI b/w Feb. 2023 and Feb. 2024:
(164/517.4) x 100 = 31.7%
Now, for the month-to-month CPI differences, the NBS said that in January, the year-on-year inflation rate was 29.90% (that is CPI increased by 29.9% between January 2023 and January 2024) while that of February is 31.7% showing an increase of 1.8% points. However, on a month-to-month comparison, Nigeria’s CPI for February, 2024 was 681.4 points while that of January, 2024 was 660.8 points. The month-to-month increase is therefore 20.6 points or 3.12% of the January figure.
THE DISTORTIONS IN THE ARGENTINA VS NIGERIA INFLATION DATA
In Nigeria, as many commentators tried to hail the Argentina president, Javier Milei for his handling of his countries economic woes, they incorrectly compared month-on-month percentage changes in Argentina’s CPI with Nigeria’s year-on-year percentage CPI changes. Many wrongly assume that Argentina’s CPI is coming down. Their CPI is not coming down, the rate increase of the CPI on a month to month basis is simply slowing down, which is a good news for the Argentines of course, although a temporary spike is anticipated in March/April following plans to further cut subsidies.
However, when compared to Nigeria’s CPI month-to-month increase, the Argentines are actually worse off. The advantage they have over Nigeria is that the inflation upward trend has slowed down in February when compared to the trend in January. For Nigeria on the other hand, the trend increased by 3.12% between January and February, 2024. The month-on-month figure for December 2023 and January 2024 shows an increase of 2.29% and 2.64% respectively. The inflation rate increase trend for Nigeria is not easing up for sure but it is not increasing anywhere close to the rate of reported by Argentina.
ANALYSING THE NIGERIAN AND ARGENTINEAN SITUATIONSP
Both Nigeria and Argentina share similar problems which is driving the rising in inflation in both countries. Both countries are contending with unstable currencies. President Bola Tinubu shortly after assumption of office oversaw the floating of the Naira, which has seen the currency weaken to around N1600 to the US Dollar. President Javier Milei also devalued the Argentinean Peso in December, which saw the peso increasing from 365 peso to the US dollar to its present value of 850 peso to a US dollar. The devaluation of the Naira and peso alone is enough to send consumer prices skyrocketing with the citizens groaning from reduced purchasing power and that was exactly what happened.
Beyond currency devaluations, Nigeria and Argentina both had the burden of paying subsidies to maintain the price of some consumer products within affordable ranges for their populace. President Tinubu of 0Nigeria on his first day in office had to end costly subsidy on PMS while President Javier Milei, two days into his presidency also announced cuts to energy and transportation subsidies with further cuts expected down the line. These actions further put inflationary pressures on the economies of the two countries.
Argentina and Nigeria also have issues with excessive government spending, above their generated revenues. The end result is huge budget deficits. This extra spending is mostly channelled to subsidies with the funds coming from borrowings (for Argentina mostly IMF while for Nigeria, a combination of sources including the CBN).
In terms of trade deficit, Argentina is in a precarious condition as the nation has a trade deficit of $43 billion, plus a daunting $45 billion debt to the International Monetary Fund alone, with $10.6 billion due to the multilateral and private creditors by April. Nigeria’s debt situation is not rosy by any means but it is far more stable than that of Argentina. President Bola Tinubu has made increasing revenue a priority with the target being to shore up Nigeria’s tax-to-GDP ratio to 18% while also reducing budget deficit – as seen in the low deficit for the 2024 budget.
Nigeria, unlike Argentina is not in danger of default in debt repayment to its creditors. Nigeria also has not resorted to cuts in critical infrastructure spendings just to have a budget surplus. That Argentina recorded its first budget surplus in 12 years is simply by design and is possible because the government of Javier Milei decided to reduce subsidy payments, cut wages of government officials (despite reduced purchasing power of the peso) and suspended many infrastructural projects. They simply do not have any space to spend more than they can earn. Their debt-to-GDP ratio is already above 90% according to the IMF. They are simply in a deep economic mess.
The easing of inflation rate increase in Argentina as seen in the January and February CPI reports, while a good omen, does not in any way indicate that the economic storm especially as it regards rising cost of living in the face of stagnant incomes, is about to abate. President Javier Milei plans further subsidy costs and further devaluation of the peso if necessary. It is therefore unnecessary to compare the Argentina austerity measures and the results they yield with the Nigerian situation because they are simply two different tales of inflation stories.