August CPI Rekindles Hopes of Downward Streak in Inflation

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There are growing expectations that the inflationary trend, which had been on the rise within the past eight months could begin to assume a downward trajectory from this month as the harvest season commences, reports James Emejo

In August the Consumer Price Index (CPI), which measures inflation increased to 17.6 per cent from 17.1 per cent in July, according to the National Bureau of Statistics (NBS).
The 0.5 per cent rise was attributed to higher prices across the board – mainly housing, water, electricity, gas and other fuel, education and transportation services.
According to the NBS, the Food Index rose by 16.4 per cent (year- on-year) in August, up by 0.6 per cent points from 15.8 per cent recorded in July.

Core inflation was recorded at 17.2 per cent from 16.9 per cent in the previous month.
Although all the major food groups contributed to the increase in the food sub-index, the pace of increase was however, slowed by fruits, potatoes, yam and other tubers as well as oils and fats, which reported slower increases during the month.
In addition, imported foods as reflected by the imported food sub-index increased by 0.2 per cent from July to 20.7 per cent in August.

Also, urban and rural prices continued to rise in the month of August. The urban index increased by 19.3 per cent (year-on-year) in August from 18.9 per cent recorded in July, while the rural index increased by 16.1 per cent in August from 15.5 per cent in July.
On a month-on-month basis, both urban and rural index increased at a slower pace, as urban index rose by 0.9 per cent in August from 1.4 per cent in July, while the rural index rose by 1.09 per cent from 1.12 per cent in July, the NBS noted.

Furthermore, energy prices as well other imported items including vehicle spare parts continued to be key contributors to movements in the core index.
The problem of rising inflation had been a major source of concern for monetary authorities particularly at a period of stagflation where production output had been on the decline while prices of commodities spiraled.

The Central Bank of Nigeria (CBN) had been using all monetary policy instruments to try to tame inflation in order to stabilise the naira against the US dollar. Yet, inflation remained in double digit for several months.

Rising prices of food items in particular has inflicted pains on the ordinary Nigerians, leading to tales of hunger across the country as additional cash is required to buy basic needs.
However, experts who spoke to THISDAY predicted moderation or even gradual drop in inflation owing to some variables including the fact the country is approaching the harvest season whereby prices of farm produce are expected to slow the rate of increase in the headline index.

First, the CBN Governor, Mr. Godwin Emefiele was optimistic that inflation should moderate going forward, as a result of its continued policy tightening stance and the harvest season.
Speaking during the last Monetary Policy Committee (MPC) meeting, he said: “The data available to the Committee and forecasts of key variables suggest that the outlook for inflation in the medium term appears benign. First, month-on-month inflation has since May 2016 turned the curve; second, harvests have started to kick-in for most agricultural produce and should contribute to dampening consumer prices in the months ahead; and third, the current stance of monetary policy is expected to continue to help lock-in expectations of inflation, which has started to improve with the gradual return of stability in the foreign exchange market.

“In this light, the MPC believes that as inflows improve, the naira exchange rate should further stabilise. Overall, the major pressure points remain the challenges in the oil sector (production and prices), output contraction, and other financial system vulnerabilities as well as foreign exchange shortage.”

Also, Associate Professor of Finance and Head, Banking & Finance, Department, Nasarawa State University, Keffi, Dr. Uche Uwaleke, expressed the optimism that the rate of increase in the headline index would likely decline.

“Since the start of 2016 when the Consumer Price Index path turned northwards, the key drivers of the inflationary pressure have remained the same notably high cost of fuel, electricity, housing, transport and the pass on effect of high exchange rate on food prices.

“These factors have not disappeared as we speak. So, I see a further spike in inflation rate in the month of September from the 17.6 per cent recorded in August and the July figure of 17.1 per cent. Like the preceding two months, the rate of change is likely to be on the decline due to the moderating effect of the harvest season on the food index,” he noted.
In the same vein, Executive Director, Corporate Finance, BGL Capital Limited, Mr. Femi Ademola, said prices are much likely to moderate in the coming months.

He said: “With regards to inflation, the combination of the effects exchange rate challenges, structural challenges and the tight monetary environment would likely see prices going further.
“However, the silver lining is that we are now entering the harvesting period which may just moderate food inflation and headline inflation. In addition, injection of funds to the economy by the FG may also help to cushion the inflation effect going forward.”
To an economist and former acting Managing Director of Unity Bank, Mr. Muhammed Rislanudenn, an effective fiscal stimulus and trade policies coupled with monetary policy instrument will drive down inflation.

According to him, “Headline inflation for August 2016 spiked upwards to 17.6 per cent or 50 basis points over 17.1 per cent recorded in July 2016 according to data released by Nigeria National board of statistics. The increase in the general price level cut across all measures of inflation with core inflation rising to 17.2 per cent in August from 16.9 per cent recorded in July 2016 while food inflation rose to 16.4 per cent from 15.8 per cent over the same period. It is important to note that the pace of rise in inflation figures has gone down, now increasing at a decreasing rate thus confirming the fact that it is largely cost push rather than demand pull inflation.

“That has also shown that attempt to attack inflation via monetary policy instruments like monetary tightening by Central Bank has been and will continue to be an exercise in futility. With stagflation and recession, loosening monetary policy by reducing monetary policy rate, would have been a better option to be taken by monetary policy committee. This can be complemented by effective fiscal stimulus and trade policies that seek to reduce rather than increase taxes at least until we get out of recession.”