New Telegraph

Analysts fault April Inflation output

It came as a surprise to most financial analysts that inflation figure which has risen for 19th consecutive months, recorded a decline in April, as Consumer Price Index (CPI) dropped to 18.12 percent. They maintained a common position that the decline recorded in April was only a flash in the pan. They are of the opinion that May will record an uptick. BAMIDELE FAMOOFO writes.

For renowned Economists like Bismarck Rewane, Managing Director, Financial Derivatives Company Limited and Abdulazeez Kuranga, Financial Analyst at Cordros Research as well as Bloomberg, there are no measurable indicators to justify the decline recorded in headline inflation in April. Experts had expected that headline inflation otherwise known as Consumer Price Index (CPI) would maintain its rising trend in April. But the National Bureau of Statistics (NBS), in a report released this week, had indicated that inflation dropped by 0.05 basis points to 18.12 percent as against 18.17 percent recorded in March. According to experts at Financial Derivatives Company Limited, consensus view of Economists compiled by Bloomberg forecast was an inflation rate of 18.8 percent for April as most analysts’ expectations were anchored on the view that the major causes of inflation remain entrenched.

FDC Limited headed by Bismarck Rewane, noted that the slight drop in inflation came as a surprise to investors, analysts and consumers as anecdotal evidence suggests the exact opposite. It noted that market proxies like the AFEX commodity index and retail prices in urban markets showed a spike in the general price level due to output shocks and supply chain disruptions emanating from heightened insecurity.

It however said some analysts have attributed the slowdown in inflation to base year effects. In Q2’20, inflation rose mildly due to the immediate impact of panic buying amid output shortages and supply chain disruptions. Meanwhile, other analysts have raised eyebrows about Nigerian inflation falling at a time when global food prices are rising and US inflation climbed to a 11-year high of 4.2 percent. They argued that global food index rose by 1.7 percent to 120.9 points in April while the naira has also lost 13.35 percent in the last 12 months ago.

Howbeit, the economic think-tank agreed that one month data is insufficient to form a trend. Hence, their submission that conversation about inflation moderating when anecdotal evidence is moving in the opposite direction will be interrogated in weeks ahead. Abdulazeez Kuranga, Financial Analysts with Cordros Research said the expectation of his company was that inflation will rise to 18.75 percent in April but surprisingly it recorded a decline. While the NBS had attributed the decline to a positive surprise from the food basket amidst the persistently high conflict levels and disruption to trade flows, Kuranga noted that ordinarily, the Ramadan period should have led to increased food prices, driven by the rise in food demand.

“However, we think consumers had anticipated this in March, thereby frontloading food items to meet their April needs. Consequently, demand for food items slowed down in April, leading to a moderation in food inflation by 91bps to 0.99% m/m – the lowest since March 2020 (0.94% m/m),” he explained.

Further throwing insight on the position of Cordros, Kuranga added: “We think the slowdown must have been due to food prices now becoming defensive given the stuttering consumer demand, which may have tempered price increases by suppliers.” FDC also noted that directionally, the drop in headline inflation could be cheery news to policy makers who had expected that increased fiscal stimulus and government interventions would spur output growth and taper inflation.

However, nominally, inflation rate in Nigeria is still alarming. The current inflation rate is far above the natural rate of inflation. In the last decade, inflation in Nigeria averaged 11.2 percent, 6.92 percent lower than the current figure (18.12%). The CBN also noted that inflation rate above 12 percent is growth retarding. “The GDP numbers are scheduled for release on May 24 and will be a major consideration at the MPC meeting next week. Notwithstanding, we expect the committee to carefully consider inflation expectations rather historical trend in determining its policy stance,” it added.

Inflation breakdown

On a monthly basis, inflation fell sharply by 0.59% to 0.97% (12.3% annualized) in April. The slow pace of increase in the monthly sub-index could be as a result of weak aggregate demand and tight liquidity in the banking system. In April, the opening position of banks was in the negative territory for 8 days. Also broad money supply (M2) fell slightly by 0.03% to N38.03trn in March. Over the years, food price movement has been a major driver of inflation in Nigeria. The year-on-year food inflation dipped 0.23% to 22.72% in April from 22.95% in March.

On a monthly basis, it recorded a sharp decline of 0.91% to 0.99%. This could be as a result of base year effects and lagged impact of border re-opening. Food inflation increased steadily since the land borders were closed in August 2019 due to reduced supply. This was compounded by currency pressures and heightened insecurity (output shocks and supply disruptions). The borders were re-opened in December 2020 but food inflation continued to rise due to time lag effect.

A troubling trend however is that food inflation is falling at a time when global food prices are rising. The global food price index increased for the 11th consecutive month to 120.9 points in April, 1.7% higher than March’s figure (118.8 points). This was driven by an increase in the sugar, oil and meat price indices. Annual core inflation increased while month-on-month declined.

On a yearly basis, the core sub-index increased by 0.07% to 12.74%. Coincidentally, it fell by the same magnitude to 0.99% on a monthly basis. The increase in the annual index cut across all nonfood items particularly for healthcare (15.88%) and transport (14.87%). Rural and Urban Both the rural and urban inflation sub-indices declined in April. On an annual basis, rural inflation fell by 0.03% to 17.57% while urban inflation declined by 0.08% to 18.68%. The rural-urban differential declined to


As the people deplete their food reserve, experts expect the demand for food items to trend upwards in May amidst a limited level of supply given the ongoing planting season. They also noted that the country is still reeling from the impact of persistent structural and security challenges, adding another layer to inflationary pressures. However, they expect the stuttering consumer demand owing to declining real income to moderate the price growth. Hence, Cordros is forecasting a 16bps increase in food inflation to 1.08 percent month on month for May.

“Barring any negative surprises from fuel prices, we expect the core inflation to remain relatively range-bound in May, amidst the naira’s stability at the IEW. Consequently, we look for a 0.96% m/m increase in core inflation. Tying all together, we now look for a 1.08% m/m headline inflation rate, cascading to a y/y print of 18.01%.” “All eyes will now be on the MPC at their meeting next week to see their reaction to the unexpected drop in inflation. The GDP numbers are scheduled for release on May 24. We are projecting a mild contraction of 0.5%.

Our view is that the committee would maintain its current stance and watch the indicators closely. This is because inflation is likely to increase again in the month of May due to output shocks and supply chain disruptions as a result of heightening insecurity. This will be compounded by exchange rate pressures and higher logistics costs,’ FDC said.

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