- A tweak of the rates by marginal 25bps?
Members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria will head into their meeting Monday and Tuesday knowing that for the first time in a long while Nigeria’s April inflation number served them à la carte ahead of their gathering.
Inflation is the new kid on the block. It is the talk of the town across many serious capital cities, across many central banks, not least the United States Federal Reserve, the United Kingdom’s Bank of England, the European Central Bank (ECB); and since inflation began to show signs that it would go rogue on the world, every serious central banker has been digging in, especially those who truly take their inflation targeting mandate and price stability remit seriously.
The responses have been swift and fast. The Federal Reserve has responded by tweaking interest rate, Bank of England base rate has been touched a couple of times and so, when Godwin Emefiele, the governor of Nigeria’s central bank, and his fellow wise monetary policy committee men and women meet Monday and Tuesday, the outcome would show how they handled the à la carte Nigeria’s April inflation number served them.
There seems to be no let up with Nigeria’s inflation, especially in terms of its ferociousness. The country’s peculiarities in terms of how it responds or does not respond to local and global economic fundamentals, appears to allow managers of the economy to get away with a lot of failings. While many central bank leaders are genuinely concerned with having inflation of even three or four or five or seven percent, Nigeria’s double figure inflation worries no one, because the parameters for measuring some officials’ KPIs are removed from reality.
The MPC members’ à la carte served by April inflation would have consisted of the fact that the insalubrious rate, for the first time in eight straight months and the third straight month in 2022, the headline number rose, crossing the 16 percent mark to settle at 16.82 percent, helped perhaps by festivities and the commencement of the planting season.
In March inflation knocked on the door at 15.92 percent, showing that the April increase was only 1.3 percentage points lower than the 18.12 percent recorded in April 2021.
Although this represents a slowdown in the headline index, it is, however, showing an accelerated increase in prices across all components that yield the headline index.
Emefiele and his fellow wise men and wise women, would find in their à la carte that the April 2022 inflation report published by the National Bureau of Statistics showed that the headline index was driven by increases in the food index, which printed 18.37 percent year on year in April, up from 17.20 percent in March, to become the highest since September 2021, and the core index, which rose by a 60-month high of 14.18 percent year on year, from 13.91 percent in the prior month.
The rise in the food index was caused by increases in the prices of bread and cereals, food products, potatoes, yam, and other tubers, wine, fish, meat, and oils and then, the core index recorded increases in prices of gas, liquid fuel, cleaning, repair and hire of clothing, clothing materials, other articles of clothing, and clothing accessories.
Inflation, which measures the average price changes of commodities used up or consumed by Nigerians overtime for their day to day living, appears to have now found comfort in the Nigerian economy to the point of being taken as normal. It serves as part of inflation’s à la carte to members of the MPC that it has become normalised, the fact that inflation has comfortably stayed above the target band of the apex bank, with nobody caring that it has been stretching the pockets of consumers with the purchasing power of Nigerians having long been eroded due to the continued pressure on the naira, which now trades at over N600 to the dollar in the streets.
Afrinvest Research analysts who spoke under the condition they won’t be named by Business A.M., attributed the jump in the year on year food inflation to a mix of “Low base effect from the prior year, demand uptick amid the Easter and Ramadan festivity, the commencement of planting and the secondary impact of rising energy cost. Disaggregated, we note that farm prices rose 18.94 percent year on year from 17.53 percent year on year in March, while processed food rose 18.20 percent from 17.11 percent in March. On the other hand, annual imported food inflation rose to 17.66 percent against 17.56 percent in March.”
Amidst this uptrend in the figure, coupled with other factors that are intensifying pressure on inflation, and also squeezing the pockets of consumers, it still remains that supply disruption due to the rain, logistics issues, roadblocks, insecurities concerns and the deteriorating state of the roads have significantly impacted on the inflation numbers negatively in recent times.
At the time when the pressures from the much talked about general elections will bring about a higher growth in inflation numbers and the economy is grappling with high debts, unemployment, low revenue, insecurity, weak naira against the dollar, slow output growth challenges, global inflation, supply disruptions and climate shocks, the average Nigerian will still be in pole position to experience the impending consequence which is likely to place millions of Nigerians into poverty should nothing be done by the fiscal and monetary authorities to avert the looming problem.
FBNQuest analysts said, “Our expectation, shared with the local newswires, was for a lower reading of 16.08 percent. The headline rate has now risen for three consecutive months following a slight deceleration in January. The elevated reading is consistent with the rising inflationary trend globally, with inflation hitting multi-year highs in many advanced and developing countries. Even more concerning is the fact that the month-over-month (month on month) reading continues to rise. The latest reading of 1.76 percent month on month is the highest since December’s reading of 1.82 percent month on month.”
On the factors or segments motivating the rising rate of inflation, it is believed that the non-food segment reported an increase as energy costs rose 16.92 percent year on year from last month’s 15.99 percent year on year as monthly inflation of 1.78 percent was unchanged from March. Also, utility, household equipment, and clothing rose 13.08 percent, 15.34 percent and 16.49 percent, year on year, respectively, from 12.32 percent, 15.07 percent and 16.08 percent year on year in the prior month. Meanwhile, analysts opine that the lingering FX quagmire and elevated energy prices drove non-food prices higher.
Furthermore, the NBS report showed that in April 2022, all items inflation on a year-on-year basis was highest in Bauchi (18.93 percent), Ebonyi (18.88 percent), and Akwa Ibom (18.80 percent) states; while Sokoto (14.65 percent), Kwara (15.33 percent) and Kaduna (15.69 percent) states, recorded the slowest rise in headline year on year inflation in that order. While food inflation on a year-on-year basis was highest in Kogi (22.79 percent), Kwara (21.56 percent), Ebonyi (21.45 percent) states, and then Sokoto (14.85 percent), Kaduna (15.55 percent) and Anambra (16.68 percent) states, recorded the slowest rise in year-on-year food inflation.
However, it is expected that the monthly food pressure cools off as green commences in the middle of May to conciliate the planting season pressure. Also, a respite in food prices is anticipated by all and sundry with the festivity behind. However, year on year food inflation is projected at 19.06 percent due to the baseline effect.
So, as the CBN Monetary Policy Committee meets to announce the outcome of its gathering on Tuesday, it is expected that the committee may be tempted to make a token hike of 25 basis points, given the soaring level of inflation and rate hikes by most central banks around the world. It is pertinent to note that Nigeria’s monetary policy transmission is weak at the moment and the meeting may end as it had always been the last 24 months.