aggregate supply

Think of Nigeria as one giant market stall, and every trader from the woman frying akara in Ojota to Dangote Cement is contributing something to the pile of goods and services on offer. Aggregate supply is simply the total size of that pile, everything the country's businesses can produce and sell at the prices on ground right now.

When prices rise, many businesses find it worth their while to produce more, so aggregate supply tends to rise too, at least up to a point. But production is more than about wanting to sell more. It depends on how much diesel costs to run generators, how easy it is to get foreign exchange for raw materials, how good the roads are for moving goods from Kano to Lagos, and how many willing hands are available to do the work. When any of these gets harder or more expensive, aggregate supply can shrink even if demand stays strong, and that is often why prices climb even when nobody is buying more than usual.

In the United Kingdom, a good example was the period after Brexit and then the energy price shocks, when supply chains got longer and costlier, and factories could not produce as freely as before. Aggregate supply fell, and shops had less to offer at the old prices, which pushed prices up even without any extra rush of shoppers.

In Nigeria, fuel subsidy removal and naira depreciation have done something similar. Manufacturers pay more for imported inputs and diesel, so many produce less than they would like, and the total aggregate supply in the economy tightens. This is one reason inflation can rise from the supply side, not only because people suddenly want to spend more.

Economists split this into short run aggregate supply, which reacts quickly to price changes, and long run aggregate supply, which depends on deeper things like infrastructure, technology, skills and how many people are working. A country grows richer over time mainly by pushing that long run supply outward, producing more with the same resources, more than riding short term price swings.