Analysts Predict Sustained Pressure as Inflation Rises to 12.26%

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James Emejo in Abuja and Nume Ekeghe in Lagos

As the Consumer Price Index (CPI), which measures inflation, rose to 12.26 per cent (year-on-year) in March, analysts yesterday predicted sustained inflationary pressure in the coming months.

They hinged their prediction on the exchange rate adjustment, border closure, obstruction in agriculture value chain and high food demand due to the lockdown and movement restrictions occasioned by the COVID-19 pandemic.

They also called on the federal government to relax movement restrictions to allow farmers and transporters take advantage of the planting season to suppress food inflation, which has been on the rise in recent times.

The inflation rose to 12.26 per cent in March compared to 12.20 per cent in the preceding month, according to the National Bureau of Statistics (NBS).

The agency, however, noted that the current lockdowns in Abuja, Lagos and Ogun States to contain the spread of the COVID-19 pandemic as well as various major disruptions in normal economic activities in some states, which started in April, did not have “any major impact on the March 2020 inflation report.”

According to the CPI report for March, which was released yesterday, food inflation increased to 14.98 per cent in the review month compared to 14.90 per cent in February.
The NBS attributed the 0.13 per cent rise in the food index to increases in prices of bread and cereals, fish, potatoes, yam and other tubers, oils and fats, vegetables and fruits.

Also, core inflation, which excludes the prices of volatile agricultural produce, increased to 9.73 per cent in March, up by 0.3 per cent compared to the 9.43 per cent recorded in February.

The core index recorded highest increases in prices of passenger transport by air, tobacco, household textiles,
major household appliances, domestic services and household services, pharmaceutical products, maintenance and repair of personal transport equipment, water supply and catering services.

Urban inflation rate peaked at 12.93 per cent (year-on-year) in March from 12.85 per cent in the preceding month while the rural index increased to 11.64 per cent compared to 11.61 per cent in February.
Inflation had assumed a downward direction in recent consecutive months when it dropped in January 2019 to 11.37 per cent from 11.44 per cent in December in 2018.

The headline index further reduced to 11.31 per cent in February and 11.25 per cent in March but resorted to the upward trajectory in April when it climbed to 11.37 per cent- and further to 11.40 per cent in May- before falling to 11.22 per cent in June, 11.08 per cent in July, 11.02 per cent in August before returning to 11.24 per cent in September, 11.61 per cent in October and 11.85 per cent in November and 11.98 per cent in December- and now 12.13 per cent in January 2020 and 12.20 per cent in February as well as 12.26 per cent last month.

Head of Research at Afrinvest West Africa, Mr. Abiodun Keripe, said there would be sustained inflationary pressure in the coming days.
“The marginal rise in inflation suggests a muted transmission of the recent VAT increase as well as exchange rate pressure. We believe this can be explained by the social distancing measures taken to slow the spread of COVID-19, which has reduced economic activity and consumer spending. Going forward, we anticipate increased pressure on domestic consumer prices, mainly food.

“Our expectation is driven by the disruption to the agriculture value chain amid the lockdown with the reduced agriculture output. We believe there would be a faster-paced increase in inflation once the lockdown measures are relaxed and economic activity resumes. Until then, the pass-through of trade restrictions, exchange rate weakening and the recent VAT increase to consumer prices would be muted,” he stated.

Head of Research, United Capital, Mr. Wale Olusi, said the lockdown brought about an increase in demand, which in turned led to a spike in food prices.
He said: “Food inflation has accounted to the largest chunk for the month of March and that is because before the lockdown, there was a crazy rush for people to stock up ahead of the lockdown. So what you saw was an increase in demand and sellers started hiking prices which is not surprising.

“There was also naira devaluation. However, ahead of the devaluation, the parallel market was already trading lower. So, if you put all this together, what you would find is an inflated price all over the place and it is in line with our expectation. We think the pressure would continue in April for similar reasons.”

Commenting on the inflation outcome, Professor of Finance and Capital Markets at the Nasarawa State University, Keffi, Prof. Uche Uwaleke, said tackling the public health and economic crisis foisted by the COVID-19 pandemic would have a positive impact on the general price level.

He added that the effective implementation of the recently announced stimulus package by the government and the Central Bank of Nigeria (CBN), largely involving credit facilities to businesses at low interest rates, would help in addressing inflationary pressures, particularly on prices.

The former Imo State Commissioner for Finance also advised the federal government to work in consultation with state governments to consider suspending the new VAT regime till the current economic and health crises disappear.

He said: “To help bring down food inflation, it will also help if the movement restrictions are relaxed in good time for farmers and transporters, who would be required to wear face masks, to enable them take advantage of the planting season.”
Former Director General, Abuja Chamber of Commerce and Industry, Dr. Chijioke Ekechukwu, said there should be free movement for agricultural products, raw materials and finished products of manufacturing concerns.

However, he said the current situation presented an opportunity in the part of the country to become more ingenious, adding that “many locally manufactured products will start emerging in our markets.”
According to him, local production capacities will start increasing with more job creation, adding that “this obviously is subject to how long the pandemic remains with us.”

Ekechukwu said: “I expect to see the inflation rate rise higher than this in the short and long run till the end of the year. We all know that our foreign currency revenue base from oil has been heavily threatened. Our naira revenue base is also threatened by the lock down and attendant negative economic outlook.

“Foreign reserves have been depleted. The demand for foreign currency cannot be matched by supply, so foreign exchange of the naira to other currencies is rising everyday. High exchange rate will have high consequences on prices of goods and services.
“The lockdown is not allowing farmers to go to the farms and not allowing free movement of farm produce. There is therefore scarcity of same in the marketplace. Insecurity still remains a bane in the production output of the agricultural value chain. All these will affect supply chain adversely and resultant price hikes.

“The way to contain the inflation rise amid the COVID-19 threat is by looking inwards to adjust ourselves to only things that will not require payment in foreign currency, by sourcing our raw materials locally and our finished goods,” he added.
On his part, an Associate Professor of Agricultural Economics at University of Port Harcourt, Anthony Onoja, called for special provisions regarding movements of vehicles delivering farm inputs, adding that SMEs need credit facilities at single digit interest rate to weather the storm.

He called for an improvement in health facilities while the current sensitisation efforts on mitigation measures against the spread of COVID-19 pandemic should be sustained.

“These can ease the level of rise in inflation at least on the short and mid-term basis.
“The increase in the consumer price index, (CPI) by 12.26 per cent (year-on-year) in March 2020 implies a rise in inflation rate facing the Nigerian economy now. This represents 0.06 percent points higher than the rate recorded in February 2020 (12.20) percent.

“Even though the difference is small, it signals the advent of the expected negative effects of the COVID-19 pandemic on Nigerian economy. This is planting season for farmers and unfortunately some farmers are affected by lockdown in some states of the federation.

“There are disruptions in the supply chain of agricultural inputs like seeds and fertilizers. Farmers are also grappling with poor access to markets and face risks of loss of produce harvested. When you factor these problems which are even exacerbated by the crash in naira value relative to US dollars as a result of oil glut due to COVID-19, it is easy to conclude that the inflation rise is most likely associated with the impact of the COVID-19 pandemic in Nigeria and the rest of the world,” he said.