Whither Nigeria’s Inflation?

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Godwin Emefiele
Godwin Emefiele

Inflation figures headed southward for the second time in two months as consumer price index (CPI), which gauges the inflation dropped to 11.08 per cent (year-on-year) in July, from 11.40 per cent in May, suggesting that the single-digit target of the Central Bank of Nigeria is achievable, writes Bamidele Famoofo

 

The consumer price index (CPI), which measures inflation dropped to 11.08 per cent in July 2019, according to a monthly CPI report released by the National Bureau of Statistics (NBS) recently. It was the first time in recent times that headline inflation will inch closer to a single digit.

The Central Bank says, a key target of the second -term five -year agenda of the governor, Mr. Godwin Emefiele, is to ensure that inflation comes down to a single digit.

Explaining how he wants to achieve the goal, Emefiele said monetary policy measures embarked upon by the CBN in the next five years will be geared towards containing inflationary pressures and supporting improved productivity in the agricultural and manufacturing sectors of the economy.

He said one of the things the CBN wants to do to achieve its single-digit target was to work with other stakeholders in the economy to bring down the cost of food items, which it said, have considerable weight in the CPI basket.

Emefiele noted that decisions by the monetary policy committee on inflation and interest rates will be dependent on insights generated from data on key economic variables. The CBN said it will continue to sustain a positive interest rate to the delight of its important stakeholders.

The CBN helmsman made it clear that his ultimate objective is to anchor the public’s inflation expectation at single digit in the medium to long term.

Review

The July CPI is 0.14 percentage point lower than 11.22 per cent recorded in June 2019.

According to NBS, increases were recorded in all COICOP divisions that yielded the headline index. On month-on-month basis, headline index increased by 1.01 per cent in July 2019. This is 0.06 per cent rate lower than the rate recorded in June 2019 (1.07) per cent.

The percentage change in the average composite CPI for the twelve months period ending July 2019 over the average of the CPI for the previous twelve months period was 11.29 per cent, compared to 11.29 per cent recorded in May 2019.

The percentage change in the average composite CPI for the twelve months period ending June 2019 over the average of the CPI for the previous twelve months period was 11.29 per cent, similar to the 11.29 per cent recorded in May 2019.

The urban inflation rate increased by 11.43 per cent (year-on-year) in July 2019 from 11.61 per cent recorded in June 2019, while the rural inflation rate increased by 10.64 percent in July 2019 from 10.87 percent in June 2019.

On a month-on-month basis, the urban index rose by 1.07 per cent in July 2019, down by 0.03 from 1.10 per cent recorded in June 2019, while the rural index also rose by 0.96 per cent in July 2019, down by 0.09 from the rate recorded in June 2019 (1.05) per cent.

The corresponding twelve-month year-on-year average percentage change for the urban index is 11.64 per cent in July 2019. This is less than 11.65 percent reported in June 2019, while the corresponding rural inflation rate in July 2019 is 10.97 percent compared to 10.99 percent recorded in June 2019.The composite food index rose by 13.39 percent in July 2019 compared to 13.56 percent in June 2019.

This rise in the food index was caused by increases in prices of oils and fats, meat, bread and cereals,

Potatoes, yam and other tubers, and fish on month-on-month basis, the food sub-index increased by 1.26 per cent in July 2019, down by 0.10 percentage points from 1.36 per cent recorded in June 2019.

The average annual rate of change of the food sub-index for the twelve-month period ending July 2019 over the previous twelve-month average was 13.46 13.42 per cent, 0.04 percentage points from the average annual rate of change recorded in June 2019 (13.42) per cent.

The ‘’All items less farm produce’’ or Core inflation, which excludes the prices of volatile agricultural produce stood at 8.80 per cent in July 2019, down by 0.04 percent when compared with 8.84 per cent recorded in June 2019.

On month-on-month basis, the core sub-index increased by 0.77 per cent in July 2019. This was down by 0.08 percent when compared with 0.85 percent recorded in June 2019. The highest increases were recorded in prices of medical and hospital services, cleaning, repair and hire of clothing, repair of household appliances, major household appliances, domestic and household services.

The average 12-month annual rate of change of the index was 9.52 per cent for the twelve-month period ending July 2019; this is 0.12 per cent points lower than 9.64 per cent recorded in June 2019.

Trend

The last time Nigeria enjoyed single-digit inflation was in the year 2015. The rate thereafter moved up dramatically from 9.5 per cent sometime in 2015 to 18.5 per cent in 2016.

But Emefiele’s CBN was able to crash the high inflationary rate triggered by over 60 per cent drop in crude oil prices between 2014 and 2016. Nigeria, largest economy in Africa depends on crude oil revenues for close to 86 per cent of its foreign exchange earnings and over 60 per cent of government expenditure.

Proactive measures taken by the Central Bank to raise of interest rate in July 2016 brought down inflation from 17.6 per cent to the region of 11.22 per cent as at June, 2019. The figure recorded in June was 0.18 per cent points lower than the rate recorded in May 2019 (11.40) per cent. On month-on-month basis, the headline index increased by 1.07 per cent in June 2019, this is 0.04 per cent rate lower than the rate recorded in May 2019 (1.11) per cent.

The percentage change in the average composite CPI for the twelve months period ending June 2019 over the average of the CPI for the previous twelve months period was 11.29 per cent, similar to the 11.29 per cent recorded in May 2019.

The urban inflation rate increased by 11.61per cent (year-on-year) in June 2019 from an increase of 11.76 per cent recorded in May 2019, while the rural inflation rate increased by 10.87 per cent in June 2019 from 11.08 per cent in May 2019.

On a month-on-month basis, the urban index rose by 1.10 per cent in June 2019, up by 0.05 from 1.15 per cent recorded in May 2019, while the rural index also rose by 1.05 per cent in June 2019, up by 0.02 from the rate recorded in May 2019 (1.07) per cent.

The corresponding twelve-month year-on-year average percentage change for the urban index was 11.65 per cent in June 2019. This is less than 11.66 per cent reported in May 2019, while the corresponding rural inflation rate in June 2019 was 10.99 per cent compared to 10.98 per cent recorded in May 2019.

Threats

The CBN said it was not unmindful of the challenges it will have to battle with to achieve its target on inflation vis-à-vis a double digit economic growth. Emefiele identified the fragile growth of the economy as a major domestic threat to achieving its five years growth target. He said the recovery of the economy from recession in 2017 was yet to deliver a significant benefit in terms of job creation, and there has not also been a substantial increase in credit to the private sector.

External factors that pose big threats to achieving economic goals set by the CBN as highlighted by Emefiele include the lingering trade war between the United States and China, U.S and Mexico and subdued growth in the Eurozone. Rising volatility in the crude oil market occasioned by the rapid increase in the supply of shale oil by the United States, remains a potential impediment to growth in Nigeria.