Last month, you went to the market and were told that the price of seven good-looking tomatoes was ₦300. You clapped with excitement and bought 28 bright red ones for your legendary pot of jollof rice. Life in Lagos isn’t so bad, you thought.
But then this month, you go back to the same market and find the same guy in the same spot, maybe even wearing the same shirt. It doesn’t look like anything has changed, so you begin selecting another set of tomatoes. But when you ask him for the price, you realise you won’t be clapping with excitement this time around. You have, again, selected 28 tomatoes, but he is telling you that ₦300 can only get you four bright ones, not seven. You object, obviously.
“My customer, na so we dey see am now,” he says. “Everything don cost for market.”
You have a choice to make: pay more for the same quantity of tomatoes for your pot of jollof rice, or consider reducing its potential redness. You are probably ready to fight the seller causing you this anguish, but it’s unlikely that the issue is one lanky man’s greed. It’s most likely inflation, the relentless, ever-growing monster kicking all our asses.
What is inflation?
In its basic definition, you could think of inflation as the name given to a general rise in prices of the stuff you buy. Granted, it’s possible the tomato seller just woke up and decided to increase his price (based on vibes), but if you do what my mother used to and try other sellers, and they all tell you the same “Na so we see am,” then clearly the tomato seller wasn’t trying to scam you. If you can swallow your pride, you will return and ask: “Oga, why?”
You may be told that the people who bring the produce to the market said that transportation is now expensive. If two months ago, they bought a full tank of fuel for ₦13,000, it is now ₦19,000. The extra ₦6,000 has reduced their profit. And for the drivers to not operate at a loss, they have increased the price of transportation.
In essence, three things have experienced an increase in price: Tomatoes, transportation and petrol. Your innocent pot of jollof rice thought its only business was with tomatoes. Lo and behold, it is connected to the oil industry.
If you get angry and decide to go eat at your favourite restaurant — the one that always puts on its generator so you never have to sweat while you down a peppery meal — you might be surprised to learn that a plate of rice has gone from ₦2,000 to ₦2,600, and the chicken is no longer the size of your fist; it’s now barely the size of two cubes of sugar.
Of course, this could be because the owner of the restaurant has hired a fancy new chef all the way from Calabar. But it could also be because her staff returned from the market and told her that tomatoes are now more expensive. And maybe she also had to pay almost double the price of transportation to the market because the driver said he bought petrol at a higher price than he is used to.
As you return to the market, with your shoulders now deflated, you may expect your lanky “customer” to be smiling. He, after all, has won this round. But he may give you a warm welcome.
“My customer, welcome,” he might say.
You wouldn’t ask why he is not rejoicing over your defeat. He probably should — but he is also thinking of how much he would need to spend on transportation on his way home, knowing that his children would like to eat jollof rice in a few days, too. It is called inflation and it has you and your tomato seller in the same position.
Why does inflation happen?
Inflation happens for several reasons. Let’s take two.
In the example above, the situation is linked to an increase in the cost of production. A pot of jollof rice is now more expensive because the price of tomatoes has gone up. This is an example of cost-push inflation. Businesses dealing in tomatoes will pass on the increase in production cost to their customers — as we see in the case of the restaurant selling jollof rice at a higher price.
Sometimes, though, inflation is simply the result of an increase in demand. If for five days a week, 4000 people leave their homes and offices to go buy jollof rice from restaurants in Lagos, but the city’s restaurants only have enough for 500 people, then prices could go up.
Why? Well, because the restaurants will understand that they have too few plates of jollof rice and might want to increase the profit made on each plate, even if the cost of tomatoes have remained the same.
The kind of inflation caused by consumers wanting much more jollof rice than Lagos restaurants can offer is demand-pull inflation. It may appear to be limited to a particular industry, but if the difference in demand and supply remains for too long, the pressure on prices may begin to spread to other sectors of the economy.
Demand-pull inflation is especially possible in situations where a few establishments sell extremely popular products. As people buy off the products, supply decreases, and, if the product is important enough — as rice is to Nigerians — people may be willing to pay higher prices for what is left of the product. Again, the situation could last only a few weeks before some balance is reached. If the process of balancing takes too long, this may cause a problem for the economy.
Broadly, anything that can drive an increase in prices can cause inflation. And two things that can do exactly that are:
1. An increase in cost of production: as shown in the tomatoes example.
2. An increase in demand: as explained with restaurants selling jollof in Lagos.
So, when next you hear that the cost of jollof rice at your favourite restaurant has increased, you have an idea of what the culprit might be.