cost push inflation
Cost push inflation is prices rising because it costs more to produce things, which is most of what Nigeria actually experiences.
In plain English
There are two ways prices rise, and confusing them leads to the wrong medicine.
Demand pull inflation happens when people have more money and chase the same goods. Too much money, not enough things. Raising interest rates works well against this, because it cools the spending.
Cost push inflation is entirely different. Prices rise because producing things has become more expensive. Fuel costs more, so transport costs more, so everything that moves on a road costs more. The naira weakens, so imported inputs cost more. Diesel for the generator, without which the factory does not run at all, costs more.
This is most of Nigerian inflation, and it is why raising interest rates so often feels like it is not working. An interest rate cannot grow more food. It cannot fix a road. It cannot make diesel cheaper or produce a functioning grid.
Which is why the honest answer to Nigerian inflation is uncomfortable and unpopular. It is not principally a monetary problem. It is a production and infrastructure problem wearing a monetary costume, and no committee in Abuja can raise a rate high enough to fix a supply chain.
For you, it means expecting inflation to persist and building for it, rather than waiting for a policy to rescue you.
Fuel prices rise sharply. Transport costs rise, so food costs more in every market in the country, and the factory running on diesel raises its prices too. Nobody had more money to spend. Everything simply cost more to make and move.
Questions people ask
What is the difference from demand pull inflation?
Demand pull is too much money chasing too few goods. Cost push is production becoming more expensive. Interest rates work well against the first and poorly against the second.
Why does raising rates not fix Nigerian inflation?
Because much of it comes from fuel, food, currency and supply problems. No interest rate can grow more food or repair a road.
What does this mean for my money?
Expect inflation to persist and build for it. Hold assets that can grow faster than prices rather than waiting for a policy that cannot reach the cause.
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