Analysts Express Cautious Optimism as Nigeria’s Inflation Drops to 18.12%

After 20 consecutive months of increase, the Consumer Price Index(CPI), which measures inflation has dropped to 18.12 per cent (year-on-year) in April, compared to 18.17 per cent the previous month, according to the National Bureau of Statistics (NBS).

However, analysts have cautioned that despite the seeming break in the upward trajectory, the coast is not yet clear for celebration.

In separate interviews with THISDAY, the analysts said it is currently difficult to assume that the marginal drop in headline inflation marked the beginning of a downward trend in inflation rate.

The CPI dropped to 18.12 per cent in April, compared to 18.17 per cent in March.

Also, food inflation slowed to 22.72 per cent in April, compared to 22.95 per cent the previous month. However, core inflation strengthened to 12.74 per cent in April from 12.67 per cent in March.

According to the CPI report for April 2021 which NBS released yesterday, urban inflation slowed to 18.68 per cent in the review period from 18.67 per cent in March.

However, month-on-month, the headline inflation increased by 0.97 per cent in April from 1.56 per cent in March while the food index rose by 0.99 per cent from 1.9 per cent in March.

Core Inflation also grew by 0.99 per cent in April from 1.06 per cent in March.

However, analysts said the key factors responsible for current hyperinflationary pressures were yet to be addressed, adding that the marginal decline does not represent the reality on the ground.

Reacting to the NBS report, Head of Research at Agusto Consulting, Mr. Jimi Ogbobine, said: “We can’t say we are winning the war against inflation because it is still above 18 per cent; especially because at 18 per cent, inflation is still at double-digit, whereas the limit of the CBN’s inflation target is nine per cent. And that means is that we can still be referred to as a high inflation environment.

“I think we need to start looking at our current inflation as a security issue even beyond the basic of economics and beyond economic preview. It means it is affecting lots of families, it is increasing poverty levels and it means that the purchasing power of disposable income is weak and when you bring in high unemployment and an increase in working poor.”

He said the Central Bank of Nigeria (CBN) could play an important role in reducing the high inflation figures.

On his part, Head, Retail Investment, Chapel Hill Denham, Mr. Ayodeji Ebo, said: “The inflation figures came as a surprise, but looking at it, it was majorly due to the high base effect of food inflation, which was a result of last year’s lockdown, which started in April and led to a sudden jump in prices.”

On what can be done to further lower the country’s high inflation rate, Ebo said: “The issue of insecurity needs to be tackled and we need to also increase production so there is enough supply.

“We need to also intensify investments into agriculture so that yields can also increase. Other things are long term, which would help reduce distribution like having a functioning rail network would really impact on the cost of distribution.”

The Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, said the risks to the inflation outlook were still present.

“It is difficult to interpret this marginal drop in headline inflation to mean the beginning of a downward trend in the inflation rate.

“This is because the risks to the inflation outlook are still present. These include insecurity, which directly impacts food inflation, the recent devaluation of the naira, and the likely hike in the pump price of fuel and electricity tariffs,” he added.

According to him, it is possible the marginal drop in food inflation may not reflect the actual drop in food prices but from the base effect associated with the methodology of computing CPI on a year-on-year basis.

Similarly, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, stated that the drop was “not a turning point” in inflationary pressure.

He said: “It is only a marginal drop which may have arisen from one or a few reasons. The factors that have caused hyperinflation have not improved.

“We have not had an improvement in security, they have rather worsened. The prices of petroleum products are expected to align with global prices of crude oil, as the oil subsidy has technically been discontinued.

“We are therefore not expecting a further drop in inflation rate, if well measured, in the next month.”

Also, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said with the looming currency devaluation and continued insecurity and civil unrest, “we may likely see an uptick in inflationary figures again.”

He added: “This indicates a leveling off of inflationary pressures, with cost-push pressures no longer increasing. The drivers of the inflationary figures were hikes in prices of fuel and electricity, rise in the exchange rate, and general supply-side shocks.

“The government is unlikely to ease its stance on food imports and farmers are scared to return to their farms due to continued insecurity so we may continue to see food prices soar.”

On his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said the CPI was still not reflective of the reality on the ground

He, however, stated that if the inflation dropped consecutively in June, July, and August, “we can then say there is a gradual turning point in the inflationary pressures.”

According to him, the new measures taken to tackle security by the federal government coupled with targeted economic policies on the agricultural value chain as well as the continuation of the present fuel subsidy regime will determine the continuous reduction in the CPI in subsequent months.

Idakolo also stressed the need for the National Economic Council (NEC) to enforce deliberate measure that could bring down inflation and reduce the hardship on Nigerians.

Also, Head of Research United Capital, Mr. Wale Olusi, said: “The steep month-on-month decline in food inflation came as a major positive surprise considering the fundamentals driving food remain unchanged. However, we think the Ramadan fasting month may have dragged food demand during the month of April. Hence the pullback in the headline number.”

James Emejo in Abuja and Nume Ekeghe in Lagos

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