Naira Notes

Though Nigeria’s Consumer Price Index recorded its 15th month of deceleration in April, from 18.97 per cent in January 2017 to 12.48 per cent in April 2018, cost of food still remains high. Bamidele Famoofo reports

For the 15th month running, Consumer Price Index, an index which tracks inflation, has recorded a deceleration in Nigeria. Kudos to the economic team of the most populous country in Africa, which did a good job of restoring the economy to the path of growth after its worst recession in two decades.

Nigeria, the largest economy in Africa with a Gross Domestic Product of $594.257 billion, ahead of South Africa at $314.216 billion as of 2018, exited recession in the second quarter of 2017, barely a year ago.

According to available data from the office of the National Bureau of Statistics, headline inflation for April 2018 stood at 12.48 per cent (year-on-year), a drop of 0.86 per cent, compared to 13.38 per cent in March 2018. The figure was the lowest since February 2016. It would be recalled that prior to its exit from recession in the second quarter of 2017, headline inflation figure in January 2017 was a staggering at 18.97 per cent.

High Cost of Living

But while the headline inflation has recorded progressive improvement in the last 15 months, according to figures provided by the nation’s statistics office, cost of living has remained high. Ordinary Nigerians, a good number of them unemployed, battle to make ends meet as a result of high food inflation. Though food inflation declined to 14.8 per cent in April, from 16.08 per cent in March, while core inflation also dropped from 11.2 per cent in March, to 10.9 per cent in April, the figures were considered sticky by economic pundits.

“Noteworthy, we find the marginal decline in the month-on-month headline inflation rate contentious, as it clearly conflicts the simultaneous month-on-month increases in both food and core inflation rates,” analysts at Cordros Securities Limited said. Similar to the previous month, the highest increase was recorded in the prices of bread and cereals, fruits and vegetables, oil and fats, coffee, tea and cocoa, milk, cheese and eggs, fish, and potatoes, yam and other tubers.

Meanwhile, on month-on-month basis, food inflation increased at a faster pace of 0.91 per cent, compared to the 0.90 per cent recorded in the previous month.

Experts also expressed worry over the impact of Foreign Exchange stability on imported food inflation, which at 1.16 per cent in April, is 0.06 per cent month-on-month lower than March’s 1.23 per cent. From a year-on-year perspective, however, the average price of imported food was 0.32 per cent higher at 16.17 per cent (March 2018:15.85%), consistent with reported 4.6 per cent year-on-year expansion in the FAO food price index to 173.5 points in April.

“All in all, we note the sustained stickiness in general price levels, highlighted by month-on-month headline CPI ranging between 0.80 per cent and 0.83 per cent since the turn of the year,” economic experts at Cordros Securities noted.

Time Lag

Speaking in the same vein, economics lecturer at the Lagos Business School (Pan African University), Dr. Bongo Adi, said food inflation will continue to remain high in the meantime, as a time lag of about 18 months exists between the periods when inflation begins to decelerate and when consumers begin to feel the impact.

Adi said, “The fact remains that inflation is dropping. 

The deceleration has been consistent for a period of 15 months, and that is really commendable, as it is good for the economy. But the fact remains that the impact is not immediately felt by consumers, as there is a lag that naturally exists.”

While Adi was optimistic that Nigerians will shortly begin to witness a drop in prices of commodities in the market, he cautioned that the lingering crisis between herdsmen and crop farmers in the food belt region of the country had the potential to continue to drive up food inflation. Another economist, Dr. Boniface Chizea, told THISDAY that Nigerians were expected to exercise more patience before they begin to reap the benefits of the current Economic Recovery and Growth Plan of the federal government.

Chizea explained that a time lag existed between the start of positive economic change and when the citizens would begin to reap the benefits.

Interest Rate

Besides the effect of high food inflation on the living standard of Nigerians, the cost of fund (interest rate) may continue to remain high in the foreseeable future, as experts have expressed doubt that a further drop in inflation in April would influence the Monetary Policy Committee to review down interest rate when it meets next week.

Experts at Cordros Securities said, “While we share consensus view of a compelling case for a rate cut at next week’s MPC meeting, amid positively evolving macroeconomic fundamentals, we think the MPC won’t cut rate just yet. Besides, giving the MPC the benefit of doubt of pursuing a proactive policy stance, our view is that the committee may find it difficult to aggressively ease its policy stance, considering a number of risk factors.”

The analysts argued that MPC might be comfortable with a 100 basis points (50 bps apiece over H2) rate cut this year, to be augmented by implicit easing (or otherwise) anchored on market rates in the fixed income space – as is currently the case.