Is Single-digit Inflation Still Achievable?

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Godwin-Emefiele

Headline inflation figure, which has been on the decline for some months, witnessed a reversal since end-September and the trend continued as consumer price index (CPI), which measures inflation increased to 11.61 per cent in October, increasing by 0.36 percentage points compared to 11.24 per cent recorded in the preceding month. The trend may have posed a big challenge to achieving single digit inflation by the Central Bank of Nigeria. Bamidele Famoofo reports

When in August 2019 the consumer price index, (CPI) which measures inflation dropped to 11.02 percent from 11.08 in July 2019, the chance of achieving a single digit inflation figure by the monetary policy authorities was very bright. But only just a month later, that hope appeared to be waning as the figure resumed an uptick.

Inflation increased by 11.24 percent (year-on-year) in September 2019, 0.22 percent points higher than the rate recorded in August 2019 (11.02) percent.

According to the National Bureau of Statistics (NBS), increases in September were recorded in all COICOP divisions that yielded the headline index.

‘’On month-on-month basis, the headline index increased by 1.04 percent in September 2019, this is 0.05 per cent rate higher than the rate recorded in August 2019 (0.99) per cent. The percentage change in the average composite CPI for the twelve months period ending September 2019 over the average of the CPI for the previous twelve months period was 11.268 per cent, showing 0.003 percent point from 11.271 per cent recorded in August 2019,’’ NBS disclosed.

The figure further increased by 0.14 basis points above 0.22 per cent recorded in September as inflation increased to 11.61 percent (year-on-year) in October 2019. This is 0.36 percentage points higher than the rate recorded in September 2019 (11.24 percent).

Just like in September, increases were recorded in all COICOP divisions that yielded the headline index.

Nigeria’s statistics bureau revealed: ‘’On month-on-month basis, the headline index increased by 1.07 per cent in October 2019, or 0.03 percentage points higher than the rate recorded in September 2019 (1.04 per cent). The percentage change in the average composite CPI for the twelve months period ending October 2019 over the average of the CPI for the previous twelve months period was 11.30 per cent, showing 0.03 percentage point increase from 11.27 percent recorded in September 2019.’’

The urban inflation rate in October stood at 12.20 per cent (year-on-year) in October 2019 from 11.78 per cent recorded in September 2019, while the rural inflation rate was recorded at 11.07 per cent in October 2019 from 10.77 per cent in September 2019. On a month-on-month basis, the urban index rose by 1.15 per cent in October 2019, up by 0.02 percentage points from 1.13 per cent recorded in September 2019, while the rural index rose by 0.99 per cent in October 2019, up by 0.03 percentage points from the rate recorded in September 2019 (0.96 per cent). The corresponding twelve-month year-on-year average percentage change for the urban index was 11.68 per cent in October 2019. This is higher than 11.63 per cent reported in September 2019, while the corresponding rural inflation rate in October 2019 was 10.95 per cent compared to 10.94 per cent recorded in September 2019.

On a year-on-year basis, the composite food index rose by 14.09 percent in October 2019 compared to 13.51 percent in September 2019. This rise in the food index was caused by increases in prices of meat, oils and fats, bread and cereals, potatoes, yam and other tubers, fish and vegetables. On a month-on-month basis, the food sub-index increased by 1.33 per cent in October 2019, up by 0.03 percentage points from 1.30 per cent recorded in September 2019. The average annual rate of change of the Food sub-index for the twelve-month period ending October 2019 over the previous twelve-month average was 13.54 percent, equivalent to 0.07 percentage points higher than the average annual rate of change recorded in September 2019 (13.47 percent).

The ‘’All items less farm produce’’ or Core inflation rate, which excludes the prices of volatile agricultural produce stood at 8.88 percent in October 2019 on a year-on-year basis, slower by -0.07 percentage points when compared with 8.94 percent recorded in September 2019. On month-on-month basis, the core sub-index increased by 0.74 per cent in October 2019, or -0.15 percentage points slower than the rate recorded in September 2019 (0.89 percent). The highest increases were recorded in prices of cleaning, repair and hire of clothing, hospital services, major household appliances, repair of household appliance, glassware, tableware and household utensils, and garments. The average 12-month annual rate of change of the index was 9.25 percent for the twelve-month period ending October 2019; this is -0.08 percentage points slower than 9.34 percent recorded in September 2019.

In analysing price movements under this section, NBS noted that the CPI was weighted by consumption expenditure patterns which differ across states. Accordingly, the weight assigned to a particular food or non-food item may differ from state to state making direct interstate comparisons of consumption baskets potentially misleading and inadvisable.

Inflation by State

In October 2019, all items inflation rate, on year on year basis was highest in Kebbi (15.20per cent), Bauchi (13.97per cent) and Ondo (13.74per cent), while Kwara (9.69per cent), Katsina (9.29per cent) and Bayelsa (9.07per cent) recorded the slowest rise in headline year on year inflation rate.

On month-on-month basis however, October 2019 All items inflation rate was highest in Benue (2.20per cent), Bauchi (1.87per cent) and Cross River (1.80per cent). Anambra recorded the slowest rise at 0.28 per cent, while Bayelsa and Ebonyi saw decline in the headline month-on-month index by -0.13 per cent and -0.35 per cent respectively.

NBS explained that in analysing price movements under this section; the CPI is weighted by consumption expenditure patterns which differ across states. ‘’ Accordingly, the weight assigned to a particular food or non-food item may differ from state to state making direct interstate comparisons of consumption baskets potentially misleading and inadvisable.’’

Food inflation rate on a year-on-year basis was highest in Kebbi (17.53per cent), Ondo (17.01per cent) and Ogun (17.00per cent), while Kogi (12.12per cent), Katsina (11.18per cent) and Bayelsa (9.55per cent) recorded the slowest rise. On month on month basis however, October 2019 food inflation rate was highest in Oyo (2.56per cent), Osun (2.52per cent) and Lagos (2.05per cent) while Enugu (0.24per cent) and Abuja (0.14per cent) saw the slowest increases in month on month food inflation rate.  Bayelsa state, at -0.35 percent, recorded price deflation or negative inflation (that is, a decrease in the general price level of food or a negative food inflation rate).

Inflation Target

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.

One of the things the CBN wants to do to achieve its single digit rate target is to work with other stakeholders in the economy to bring down the cost of food items, which it said, had considerable weight in the Consumer Price Index 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 was to anchor the public’s inflation expectation at single digit in the medium to long run.

Meanwhile central bank said it was not unmindful of the challenges it will have 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-year 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 had not also been a substantial increase in credit to the private sector.

External factors which 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 hindrance for growth in Nigeria.