Inflation Rate Surprisingly Slows to 18.12% in April Ahead of MPC Meeting

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Nigeria: October 2020 Inflation Rate Rises to 14.23% as Food Inflation Jumps to 17.38%

Freshly released data from the National Bureau of Statistics (NBS) showed that headline inflation slowed down for the first time in 20 months. It recorded a 18.12% decline in the annual inflation rate for the month of April (lower than 18.17% in March).

This southward movement was majorly driven by a slower increase in the food index to 22.72% (from 22.95% in March) on the back of a rise in prices of coffee, tea, milk, bread, cereals, potatoes, yams and other tubers, meat, as well as fruits amongst others.

Also, the imported food index rose to 16.90% (from 16.65%) amid the depreciation of the Naira at the BDC and Parallel markets – specifically, two months moving average foreign exchange rates at the BDC and Parallel markets rose m-o-m by 0.72% and 0.62% to N478.55/USD and N484.02/USD in April 2021.

Nigeria: October 2020 Inflation Rate Rises to 14.23% as Food Inflation Jumps to 17.38%

On the other hand, Core inflation rose to 12.74% (from 12.64% in March) driven by rising in price of pharmaceutical products, vehicle spare parts, medical services, furniture and finishing amongst others.

On a monthly basis, headline inflation moderated to 0.97% (from 1.56% in March) amid decline in food inflation to 0.99% (from 1.90% in March). Food inflation moderated despite the worsened insecurity challenges in the country as well as the anticipated decline in food stockpiles given the fact that we are still in the planting season.

Also, core inflation fell to 0.99% (from 1.06% in March) amid a decline in clothing and footwear cost (0.54%) and flattish water, electricity, gas and other fuel costs (0.00%). Urban and rural annual inflation rates moderated to 18.68% (from 18.76%) and 17.57% (from 17.60%) respectively in April.

Meanwhile, the Monetary Policy Committee (MPC) would, in the new week, decide on the direction of the benchmark rate, having considered the macroeconomic variables.

In the last meeting, the major concerns of the Committee include, but not limited to, the unabated rising trend of domestic prices and the need for monetary and fiscal policies to push down prices via financing productive ventures, which are expected to boost aggregate supply; as well as its continued innovative effort to maintain exchange rate stability, especially the incentives to attract diaspora remittances into the country.

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The Committee also felt that the huge level of monetary and fiscal injections amid expansionary policy and stimulus packages may heighten the risk of financial instability.

Against this backdrop, we note that the final decision of the Committee from its upcoming 279th meeting would chiefly be driven by the major challenges of taming the rising inflation, maintaining exchange rate stability and sustaining growth recovery in the economy, while focusing on the downside risks associated with the injection of more funds.

Accordingly, CBN had in recent times taken some bold steps that may enable it to resume its expansionary policy given the continuous depreciation of the Naira against the greenback which had compelled it to discontinue its drive to bring down stop rates.

One of these strong moves was the devaluation of the exchange rate at the official window amid its claim to harmonize the rate with that of the Investors & Exporters Window (I&E FXW).

Despite the surprise moderation in the inflation rate, we remain cautiously optimistic and expect prices to remain sticky due, in part, to the ongoing rainy season and the lingering effects of structural bottlenecks and insecurity.
Other factors include probable upward adjustment to electricity tariffs, the effect of higher crude oil prices on transportation costs as well as likely increase in imported food due to upward pressures on the exchange rate.
Meanwhile, we expect the Monetary Policy Committee (MPC) to at least hold Monetary Policy Rate (MPR) constant.
Nevertheless, we do not rule out the possibility of the Committee increasing the MPR in order to further consolidate its move to stabilize the depreciating exchange rate.