As Inflation Dips Further…

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Analysts share their interpretations of the recent data released by the country’s official statistics agency, which reveal a further dip, for the eighth consecutive month, in inflation rate, in this report by Olaseni Durojaiye

For the eight consecutive months Nigeria’s inflation rate dropped to 15.98 per cent in September, from 16.01 per cent in August, indicating stability in the economy. But food prices remain high, rising by 0.07 per cent during the same period, according to data released by the National Bureau of Statistics last Tuesday.

A review of the latest data showed that the consumer price index, which measures inflation, increased by 15.98 per cent (year-on-year) in September 2017, down 0.03 per cent from the rate recorded in August, 16.01 per cent, making it the eighth consecutive decline in the rate of headline inflation year-on-year since January 2017. The NBS noted that increases were recorded in all the divisions of the classification of individual consumption by purpose that yielded the top line index. COICOP is a classification used to classify both individual consumption expenditure and actual individual consumption.

The September drop is the eighth consecutive decline in the rate of headline year-on-year inflation since January 2017.
On a month-on-month basis, the headline index increased by 0.78 per cent in September 2017, 0.19 per cent points lower from the rate of 0.97 per cent recorded in August.

The percentage change in the average composite CPI for the 12-month period ending in September 2017 over the average of the CPI for the previous 12-month period was 17.17 per cent, showing 0.16 per cent point lower from 17.33 per cent recorded in August 2017.

The urban index rose by 16.18 per cent (year-on-year) in September 2017, up by 0.05 per cent point from 16.13 per cent recorded in August and the rural index increased by 15.81 per cent in September down from 15.91 per cent in August.

On month-on-month basis, the urban index rose by 0.84 per cent in September 2017, down from 0.99 per cent recorded in August, while the rural index rose by 0.74 per cent in September 2017, down from 0.95 per cent in August.

The corresponding 12-month year-on-year average percentage change for the urban index decreased from 18.15 per cent in August to 17.87 per cent in September, while the corresponding rural inflation rate in September was 16.52 per cent compared to 16.58 per cent recorded in August 2017.

Food Prices on Increase
Food price pressure continued into September as all major food sub-indexes increased. The Food Index increased by 20.32 per cent (year-on-year) in September, up marginally by 0.07 per cent points from the rate recorded in August (20.25 per cent).

The rise in the index was caused by increases in prices of potatoes, yams and other tubers, milk cheese and eggs, bread and cereals, coffee tea and cocoa, soft drinks, fish, meat and oil and fats.
On a month-on-month basis, the food sub-index increased by 0.87 per cent in September, down from 1.14 per cent recorded in August.

The average annual rate of change of the food sub-index for the 12-month period ending in September 2017 over the previous 12-month average was 18.88 per cent, 0.31 percent points from the average annual rate of change recorded in August (18.57) per cent.
The “All Items less Farm Produce” or core sub-index, which excludes the prices of volatile agricultural produce eased further during the month of September to 12.10 per cent points from 12.30 per cent recorded in August, as all key divisions, which contribute to the index, increased.

On a month-on-month basis, the core sub-index increased by 0.80 per cent in September, lower from 0.93 per cent recorded in August.

The highest increases were recorded in clothing materials and articles of clothing, solid fuels, garments, passenger transport by air, motorcycles, shoes and other footwear, furniture and furnishing and non-durable household goods.

The average 12-month annual rate of change of the index was 14.90 per cent for the 12-month period ending in September 2017, that is 0.47 per cent points lower than 15.37 per cent recorded in August.

Insignificant Drop
Analysts at Financial Derivatives Company had projected marginal decline in headline inflation year-on-year to 15.99 per cent for the month of September 2017, adding that continued marginal decline might encourage the Central Bank of Nigeria to maintain a contractionary monetary policy through mopping liquidity from the system to prevent a relapse in inflation levels.

But speaking with THISDAY, President of the Manufacturers Association of Nigeria, Dr. Frank Jacobs, questioned the rationality behind the apex bank’s continued liquidity mopping policy and insisted on the need to stimulate the economy before considering inflation.

While reacting to the latest decline, Jacobs noted that the latest decrease in inflation rate was “very small” and not significant enough to affect the state of the economy. He also stated that the current inflation rate had not impacted the manufacturing sector any positively, adding that operators in the sector currently complain of high inventory of unsold stock, which he traced to very low liquidity in the system. He added that the CBN was currently mopping up liquidity in the system.

According to Jacobs, “The recent decline in inflation level, 0.03, is very small; it is not significant enough to affect prices of goods, principally, because it is not inclusive. It has not gone down to every facet of the economy. Even though we have exited recession, we’re no better than when we were in a recession. The fundamentals have not changed because even with the latest decrease, inflation is still high at double digits. We won’t feel the impact until it comes down to below 10 per cent.

Responding to questions on how the latest decline was impacting the manufacturing sector, particularly, against the backdrop of the CPI, explained it as a result of lack of liquidity in the system. He called for a review of the CBN policy of mopping liquidity from the system in the name of guarding against rise in inflation level.

“There is still large stock of finished goods not being bought, as there is no money in circulation. The CBN is mopping up liquidity right now, even the banks are having tough times because of restrictions and limitations of money in circulation. We expect that the CBN should do something to make more money available, even though they argue that that may lead to another round of inflation. But I feel it is important to stimulate the economy before you begin to talk of inflation.” he stated.

In his response to enquiries, an economic policy analyst with the Nigerian Economic Summit Group, Rotimi Oyelere, stated, “The downward adjustments in inflation indicate that the macroeconomic environment is stable.” Oyelere added, “This stability has the potential to facilitate investment in flow into the country; even though the real interest rate is still negative. The economy needs investment to consolidate the economic recovery.”