Inflation to Drop in March To 11.29% – FSDH

If our estimate comes true for March 2019, it means that the first quarter of the year 2019 was a good quarter for the Nigerian economy as FSDH Research expects the inflation rate to drop further in March. FSDH Research’s latest review of food prices and other major items that make up the Consumer Price Index (CPI) basket (alcohol beverages, clothing and footwear, housing, water, electricity, gas and other fuels and etc.) suggests that the ination rate should reduce further in March. The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) cited the moderation in the ination rate since January as one of the justifications for a cut in the interest rate in March 2019. Wait a minute! Before you tell us that the prices of consumer goods you bought in March increased and ask us if we patronised the same market as you, a drop in the headline ination rate does not necessarily mean that the prices of consumer items actually dropped. It only means that the prices of consumer goods increased at a lesser rate this year compared with the corresponding period last year.

FSDH Research expects the March inflation rate to drop marginally to 11.29% from 11.31% in February 2019. However, month-on-month there was an increase in the general price level from 0.74% in February to 0.83% in March 2019. As the rainy season approaches, we expect an increase in the prices of food items, particularly vegetables. A declining inflation rate is a good development for the Nigerian economy, but we note that the main factors that will ensure the inflation rate drops to a single digit, which is the target of the CBN, are outside the control of the CBN. The poor infrastructure in Nigeria, high energy costs, insecurity in some parts of the country and excessive reliance on crude oil as the major source of revenue and foreign exchange earner are the major drivers of inflation in Nigeria.

Our preliminary checks also suggest that imported inflation rate (i.e. prices of goods using imports as raw materials) lessened in March. The marginal appreciation in the value of Naira in March compared with the relative stability in the prices of food items on the international market provided again on the prices of consumer items in Nigeria. The increase in the global price of crude oil in March and an increase in the inflow from the Foreign Portfolio Investment (FPI) led to the appreciation in the value of the Naira. The value of the Naira at end-March at N360.47/US$ compared with end-February at N361.13/US$ indicates that the value of the Naira strengthened by N0.66.

Although our expected inflation rate forecast is still higher than the target of the CBN, the relatively low inflation rate may encourage the issuance of Commercial Papers (CPs) that will enable corporates to fund their short-term capital requirements.