Analysts Express Cautious Optimism as Inflation Drops Further

•MPC meeting begins today

James Emejo and Sonia Mayomi in Abuja

The Consumer Price Index, (CPI) which measures inflation further dropped to 17.01 per cent (year-on-year) in August compared to 17.38 per cent in July, indicating the fifth consecutive months of decline.

The development is a major boost to the Central Bank of Nigeria (CBN)’s efforts towards achieving a single-digit inflation and is expected to influence decision of the Monetary Policy Committee (MPC) which begins its two-day meeting today.

But analysts have said despite the deceleration in the headline index, it was too early to celebrate, partly due to the fact that the statistics do not conform to reality.

They said though the drop in inflation was a welcome development, increases in pump price of fuel which comes with the Petroleum Industry Act (PIA) 2021 as well as higher electricity tariffs still posed major threats to prices.

According to the National Bureau of Statistics (NBS), food inflation slowed to 20.30 per cent in the review period compared to 21.03 per cent in July.

The NBS, in its CPI report for the month under review noted that food prices increased at a slower rate in August, following moderation in prices of bread and cereals, milk, cheese and egg, oils and fats, potatoes, yam and other tuber, food product, meat and coffee, tea and cocoa.

On the other hand, the core inflation, which excludes prices of volatile agricultural produce also slowed to13.41 per cent in August 2021, down by 0.31 per cent when compared with 13.72 per cent in July.

The highest increases in the core index were recorded in prices of shoes and other footwear, household textile, motor cars, garments, game of chance, major household appliances whether electric or not, hospital services, catering services, appliances, articles and product for personal care and clothing materials, other articles of clothing and clothing accessories.

The urban inflation rate dropped to 17.59 per cent (year-on-year) in August from 18.01 per cent in July 2021, while the rural inflation rate also slowed to 16.43 per cent from 16.75 per cent.

However, analysts in separate interviews with THISDAY argued that in real terms, cost of household goods had continued to increase with consistent rise in the naira/dollar exchange rate, thereby affecting importation of raw materials and the cost of goods and services.

Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said even though there are indications that the economy was easing off with resilient economic traction and activities, the harsh economic reality does not call for celebration yet.

He said, “Although exchange rate continues to go up, one would have expected a resultant increase in CPI but we are seeing a drop.

“The implication is that availability of goods and services has increased and movement of goods has eased up also. The impact of COVID-19 lock down is gradually reducing its effects.

“We should however, not celebrate yet, considering what the inflation rates of other countries experiencing the same harsh economic conditions are.”

Also, Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, further predicted the deceleration in inflation rate to continue in the wake of the CBN’s sustained interventions in the agricultural sector particularly as the harvest season approaches.

However, he said, “So long as the implementation of the major threats to inflation are delayed. I am referring to increases in pump price of fuel which comes with the PIA 2021 as well as electricity tariffs.”

On his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said the deceleration in inflation could not offer the country the needed relief at the moment as the, “impact of the decline in inflation from 17.38 per cent to 17.01 per cent is not being felt in the economy.

He said, “The CPI report is not in congruent with the realities on ground with unemployment rate increasing and more people moving into poverty on daily basis.

“The impact of increased borrowing by government is not also being felt and the government is now servicing existing borrowings with almost 90 per cent of generated revenue.”

Also commenting on the CPI report, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, pointed out that decline in inflation rate simply highlighted that the rate at which inflation was increasing had reduced.

He said, “Core inflation itself is still rising and can be felt by the majority of the population.

“From a socio-economic viewpoint, we must not be overly focused on the statistics but must also look at the reality to the populace.”

CBN Governor, Mr. Godwin Emefiele recently said the apex bank had been able to reverse rising headline inflation which is now in its fifth consecutive month of decline.

He said, “Reflecting several measures put in place by both the fiscal and monetary authorities…We do expect that the pace of inflation will continue to moderate in the following months as we approach the harvest season.”

Meanwhile, commenting on its expectation from the MPC, analysts at Cordros Securities Limited, anticipated that, “the committee would be cautious with the growth outlook given that the third quarter 2021 Gross Domestic Product figures like the second quarter 2021 numbers would be flattered by a favourable base effect from the prior year.

“Besides, the growth is still uneven, even as the domestic economy remains vulnerable to external shocks. Therefore, we believe the fragile recovery process would induce the Committee to favour standing pat on its monetary policy decisions.”