As Inflation Continues to Rise… 

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Godwin Emefiele

Nigeria recorded a consumer price index of 12.13 per cent, a 22-month high inflation in January. The increased CPI, according to the National Bureau of Statistics was due largely to pressure in food prices. Bamidele Famoofo reports that the rising inflation, apart from making life more unbearable for Nigerians, especially low income earners, is a disincentive to inflow of capital to the country

The consumer price index (CPI), which measures inflation increased by 12.13 per cent (year-on-year) in January 2020.  The National Bureau of Statistics (NBS), which released the information recently, said the figure is 0.15 per cent points higher than 11.98 per cent  recorded in December 2019.

‘’On month-on-month basis, the Headline index increased by 0.87 per cent in January 2020, this is 0.02 per cent rate higher than the rate recorded in December 2019 (0.85) per cent.

The percentage change in the average composite CPI for the twelve months period ending January 2020 over the average of the CPI for the previous twelve months period was 11.46 per cent, showing 0.06 per cent point from 11.40 per cent recorded in December 2019.

On a month-on-month basis, the urban index rose by 0.92 percent in January 2020, up by 0.02 from 0.90 per cent recorded in December 2019, while the rural index also rose by 0.83 per cent in January 2020, up by 0.01 from the rate recorded in December 2019 (0.82) per cent.

Pressure was mounted on inflation as food prices keeps on rising due to rising cases of insecurity mostly in the food producing areas of the country. The composite food index rose by 14.85 percent in January 2020 compared to 14.67 percent in December 2019.

This rise in the food index, according to NBS, was caused by increases in prices of bread and cereals, meat, oils and fats, potatoes, yam and other tubers and fish. On month-on-month basis, the food sub-index increased by 0.99 0.97 percent in January 2020, up by 0.02 percent points from 0.97 percent recorded in December 2019.

Nigeria vs. Others

While Nigeria’s inflation increased by 12.13 percent in January, South Africa recorded inflation rate of 4.5 percent year-on-year (7-months high) in the same period. This was due to a respective pressure in food and energy prices. Similarly, inflation rates in Rwanda (7.3per cent) and Mauritius (2.0per cent) grew compared to Dec-2019. However, Ghana (7.8per cent), Tunisia (5.9per cent) and Namibia (2.1per cent) recorded lower y/y rates.

Inflation vs. Capital Flow

Economic analysts at United Capital Plc said to compensate investors, nominal yields on fixed income securities in African countries are expected to remain above inflation.

In the case of Nigeria, however, the situation is a huge disincentive to portfolio investors as real yield stands at negative. ‘’Nigeria’s real yield at -1.4 percent is very worrisome, implying a negative real return for investors,’’ United Capital said.

South Africa, another heavyweight, in the continent could still offer a real yield of 4.5 percent at the current inflation rate.

Meanwhile, using the 10-year bond as a proxy for nominal yield, across the countries covered, Ghana, Tanzania and Egypt offer the highest real return at 11.2 percent, 10.7 percent and 8.8 percent respectively. Mauritius (2.2per cent) and Morocco (1.5per cent) offer the lowest cover for inflation.

According to United Capital Research, a look at the performance of these economies in attracting capital, the positive real yields in Ghana and Egypt, coupled with strengthening local currencies (7.0per cent and 2.3per cent YTD respectively), has buoyed foreign portfolio inflows. As a result, foreign reserves for these countries has been on the rise.

However, the policy uncertainties in Nigeria seemed to be slowing the pace of foreign capital flows, amid sustained pressure on external foreign reserves.

Analysts

An economist. Mr. Marcel Okeke, said the current inflationary trend in Nigeria is largely policy-induced. He cited land border closure since August 2019, implementation of new minimum wage almost nationwide, hike in VAT from 5 per cent to 7.5 percent among others as reasons why inflation keeps galloping. ‘’All these policies have the capacity to push up inflation rate. The local farmers are also exploiting the unorthodox policy of land border closure to hike prices of their local produce (e. g. rice)’’, he said.

Okeke however said one of the steps that must be taken to curtail the rising inflation is to open the land borders; and then properly manage smuggling. ‘’Other monetary policy measures to control money supply should be put in place. Measures also have to be taken to somehow deal with Nigerians’ penchant for consumption of imported things: this will check imported inflation component of the rising trend. The campaign for use of made in Nigeria goods must be intensified, and government must begin lead by example.’’

A financial consultant, Dr. Boniface Chizea, said the rising inflation rate was predictable, and that all one needs to do is to follow closely the Bureau of Statistics release which explains that it is largely due to rising food prices.  ‘’Food production in the country was already problematic due to the activities of Boko Haram, banditry, kidnaps across the length and breadth of this country particularly along the food producing belt of the country that made it difficult for farmers to go to farms.’’

Dr. Chizea noted that the situation became worsened with the border closure which abruptly ended importation of food items across the land borders resulting in a sudden spike in food prices. He also cited excess liquidity in the economy, noting that investment outlets dry out as a result of non-remunerative interest rates as treasury bills and commercial paper rates tumble. ‘’The foreign exchange rates have not been affected because the Central Bank is adamant in its defence of exchange rate in the interest of maintaining macroeconomic stability.’’

Meanwhile, Chizea said there are no quick fixes, as he noted that any policy resort must of necessity be work in progress. But he is confident that once the borders are reopened to allow food importation, Nigerians would heave a sigh of relief.

Outlook

Economic analysts with Cordros Securities have projected that inflation will climb to 14.96 percent y/y in February. The reason for this is that food inflation would persist

‘’For clarity, given the recent rise in Boko Haram’s activities in some food-producing states, we project a slight shortage of farm produce, as the populace and farms continue to get displaced. Hence, we forecast a 12bps increase in food inflation to 14.96 percent y/y. Elsewhere, while exchange rate and PMS price stability should ordinarily drive core inflation downwards, we expect the unfavourable low base to lead to a 9.51 percent y/y rise in the core basket. Overall, we forecast headline inflation of 12.30 percent y/y in February 2020,’’ the analysts asserted.

According to the securities firm, the implication of rising inflation for investment is that fixed income investors will continue to battle with negative returns.

‘’On an inflation-adjusted basis, yields in the fixed income market continue to trend deeper into negative territory as the gap between fixed income yields and inflation continues to widen. Also, our outlook for yields in short to medium term suggests that yield will remain at par or slightly below current levels.’’

 As Inflation Continues to Rise…

Nigeria recorded a consumer price index of 12.13 per cent, a 22-month high inflation in January. The increased CPI, according to the National Bureau of Statistics was due largely to pressure in food prices. Bamidele Famoofo reports that the rising inflation, apart from making life more unbearable for Nigerians, especially low income earners, is a disincentive to inflow of capital to the country

The consumer price index (CPI), which measures inflation increased by 12.13 per cent (year-on-year) in January 2020.  The National Bureau of Statistics (NBS), which released the information recently, said the figure is 0.15 per cent points higher than 11.98 per cent  recorded in December 2019.

‘’On month-on-month basis, the Headline index increased by 0.87 per cent in January 2020, this is 0.02 per cent rate higher than the rate recorded in December 2019 (0.85) per cent.

The percentage change in the average composite CPI for the twelve months period ending January 2020 over the average of the CPI for the previous twelve months period was 11.46 per cent, showing 0.06 per cent point from 11.40 per cent recorded in December 2019.

On a month-on-month basis, the urban index rose by 0.92 percent in January 2020, up by 0.02 from 0.90 per cent recorded in December 2019, while the rural index also rose by 0.83 per cent in January 2020, up by 0.01 from the rate recorded in December 2019 (0.82) per cent.

Pressure was mounted on inflation as food prices keeps on rising due to rising cases of insecurity mostly in the food producing areas of the country. The composite food index rose by 14.85 percent in January 2020 compared to 14.67 percent in December 2019.

This rise in the food index, according to NBS, was caused by increases in prices of bread and cereals, meat, oils and fats, potatoes, yam and other tubers and fish.

On month-on-month basis, the food sub-index increased by 0.99 0.97 percent in January 2020, up by 0.02 percent points from 0.97 percent recorded in December 2019.

Nigeria vs. Others

While Nigeria’s inflation increased by 12.13 percent in January, South Africa recorded inflation rate of 4.5 percent year-on-year (7-months high) in the same period. This was due to a respective pressure in food and energy prices. Similarly, inflation rates in Rwanda (7.3per cent) and Mauritius (2.0per cent) grew compared to Dec-2019. However, Ghana (7.8per cent), Tunisia (5.9per cent) and Namibia (2.1per cent) recorded lower y/y rates.

Inflation vs. Capital Flow

Economic analysts at United Capital Plc said to compensate investors, nominal yields on fixed income securities in African countries are expected to remain above inflation.

In the case of Nigeria, however, the situation is a huge disincentive to portfolio investors as real yield stands at negative. ‘’Nigeria’s real yield at -1.4 percent is very worrisome, implying a negative real return for investors,’’ United Capital said.

South Africa, another heavyweight, in the continent could still offer a real yield of 4.5 percent at the current inflation rate.

Meanwhile, using the 10-year bond as a proxy for nominal yield, across the countries covered, Ghana, Tanzania and Egypt offer the highest real return at 11.2 percent, 10.7 percent and 8.8 percent respectively. Mauritius (2.2per cent) and Morocco (1.5per cent) offer the lowest cover for inflation.

According to United Capital Research, a look at the performance of these economies in attracting capital, the positive real yields in Ghana and Egypt, coupled with strengthening local currencies (7.0per cent and 2.3per cent YTD respectively), has buoyed foreign portfolio inflows. As a result, foreign reserves for these countries has been on the rise. However, the policy uncertainties in Nigeria seemed to be slowing the pace of foreign capital flows, amid sustained pressure on external foreign reserves.

Analysts

An economist. Mr. Marcel Okeke, said the current inflationary trend in Nigeria is largely policy-induced. He cited land border closure since August 2019, implementation of new minimum wage almost nationwide, hike in VAT from 5 per cent to 7.5 percent among others as reasons why inflation keeps galloping. ‘’All these policies have the capacity to push up inflation rate. The local farmers are also exploiting the unorthodox policy of land border closure to hike prices of their local produce (e. g. rice),” he said.

Okeke however said one of the steps that must be taken to curtail the rising inflation is to open the land borders; and then properly manage smuggling. ‘’Other monetary policy measures to control money supply should be put in place. Measures also have to be taken to somehow deal with Nigerians’ penchant for consumption of imported things: this will check imported inflation component of the rising trend. The campaign for use of made in Nigeria goods must be intensified, and government must begin lead by example.’’

A financial consultant, Dr. Boniface Chizea, said the rising inflation rate was predictable, and that all one needs to do is to follow closely the Bureau of Statistics release which explains that it is largely due to rising food prices.  ‘’Food production in the country was already problematic due to the activities of Boko Haram, banditry, kidnaps across the length and breadth of this country particularly along the food producing belt of the country that made it difficult for farmers to go to farms.’’

Dr. Chizea noted that the situation became worsened with the border closure which abruptly ended importation of food items across the land borders resulting in a sudden spike in food prices. He also cited excess liquidity in the economy, noting that investment outlets dry out as a result of non-remunerative interest rates as treasury bills and commercial paper rates tumble. ‘’The foreign exchange rates have not been affected because the Central Bank is adamant in its defence of exchange rate in the interest of maintaining macroeconomic stability.’’

Meanwhile, Chizea said there are no quick fixes, as he noted that any policy resort must of necessity be work in progress. But he is confident that once the borders are reopened to allow food importation, Nigerians would heave a sigh of relief.

Outlook

Economic analysts with Cordros Securities have projected that inflation will climb to 14.96 percent y/y in February. The reason for this is that food inflation would persist

‘’For clarity, given the recent rise in Boko Haram’s activities in some food-producing states, we project a slight shortage of farm produce, as the populace and farms continue to get displaced. Hence, we forecast a 12bps increase in food inflation to 14.96 percent y/y. Elsewhere, while exchange rate and PMS price stability should ordinarily drive core inflation downwards, we expect the unfavourable low base to lead to a 9.51 percent y/y rise in the core basket. Overall, we forecast headline inflation of 12.30 percent y/y in February 2020,’’ the analysts asserted.

According to the securities firm, the implication of rising inflation for investment is that fixed income investors will continue to battle with negative returns.

‘’On an inflation-adjusted basis, yields in the fixed income market continue to trend deeper into negative territory as the gap between fixed income yields and inflation continues to widen. Also, our outlook for yields in short to medium term suggests that yield will remain at par or slightly below current levels.’’