COVID-19 LOCKDOWN, SUPPLY DISRUPTIONS AND INFLATIONARY PRESSURE IN NIGERIA

Abstract

There has been an eclectic adoption of the lockdown strategy to curb the spread of COVID-19. Apart from curbing the spread of the virus, lockdowns may have an unanticipated effect on other facets of human existence beyond the disease itself. This study, therefore, examines the impact of the COVID-19 lockdown strategy on the supply and inflation rate in Nigeria. Monthly Purchasing Managers Index (PMI) in manufacturing and non-manufacturing activities was utilized. Using a 50-point benchmark index, the overall manufacturing composite PMI for the months of January (59.2 points), February (51.1 points), and March (58.3 points) indicates that the economy expanded prior to the COVID-19 lockdown. Meanwhile, the overall manufacturing composite PMI for the month of May stood at 42.4 points indicating that the economy contracted by about 16 points following the lockdown. Similarly, the overall non-manufacturing PMI for the months of January and February showed evidence of growth at 59.6 points and 58.6 points respectively. Contrarily, the overall non-manufacturing PMI for the months of March (49.2 points) and May (25.3 points) showed a declining non-manufacturing sub-sector. The individual diffusion indices that make up the overall manufacturing and non-manufacturing PMI showed a general contraction in the month of May. These contractions affected the supply of manufactured commodities. New orders and production levels dwindled, which in turn created rising unemployment and supply shortages. The overall implication of this production-distribution debacle created a gap between supply and demand leading to demand-pull inflation in the month of May. The monthly inflation rate increased from 12.34% in the month of April to 13.39% in the month of May showing an increase of 8.5 percentage points in just one month. Given a fragile economy, the spread of the COVID-19 and its lockdown containment strategy created aggregate demand and supply gap which led to the increase in the inflation rate in Nigeria within the period of study. This study, therefore recommends that government should implement a selective lockdown strategy that will allow the manufacturing and other critical sectors to remain in operation while trying to curb the spread of the virus.