It’s a silent thief, says Rewane
Though inflation has recorded a consistent drop for the eighth consecutive time in 2021 and stands at its lowest in 11 months since 2020, economic pundits are of the opinion that it remains a ‘silent thief’ as the downside has seen more ordinary Nigerians sink deeper into poverty as they are losing more money as against their initial wish. BAMIDELE FAMOOFO reports.
Whilst it is commendable that inflation in Africa’s largest economy has continued to decelerate in the last eight months, standing at 15.40% in November as against 14.89% recorded in November 2020, the gains remain far fetched as more Nigerians still struggle to make ends meet.
It is also said that the relatively high inflation in the country is not conducive to investment as it is forcing ambitious investment in high yield asset classes especially crowd-funded agric tech.
Bismarck Rewane, Chief Executive Officer, Financial Derivatives Company Limited, described the inflation environment in the country as a ‘silent thief’ as he argued that inflation, though recording drops on a monthly basis, remains above the 9.0% single digit target of the Central Bank of Nigeria.
His words: “The CBN has also consistently maintained that an inflation rate above 12% is growth retarding. Nigeria’s high inflation rate is forcing ambitious investment in high yield asset classes especially crowd-funded agric tech. The downside has seen most of these platforms crash and the masses losing more money as against their initial goal.”
Emefiele’s interventions
It would be recalled that a major goal of Godwin Emefiele, Governor of the CBN, when he took office for a second term tenure of five years in May 2019 was to achieve single digit inflation.
Emefiele said monetary policy measures to be 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.
“the last time Nigeria enjoyed single digit inflation was in the year 2015. The rate thereafter moved up dramatically from 9.5% sometime in 2015 to 18.5% in 2016
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Part of the things the CBN wants to do to achieve its single digits rate target is to work with other stakeholders in the economy to bring down the cost of food items, which it said have 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 is to anchor the public’s inflation expectation at single digits in the medium to long run.
Review
The CBN has missed its single digits inflation target of between 6-9 % set between 2017 and 2019. Record has shown that the only years when the CBN was spot on in its inflation forecasts were 2004, 2006, 2010 and 2014.
Meanwhile, the last time Nigeria enjoyed single digit inflation was in the year 2015. The rate thereafter moved up dramatically from 9.5% sometime in 2015 to 18.5% in 2016.
But Emefiele’s Central Bank was able to crash the high inflationary rate triggered by over 60% drop in crude oil prices between 2014 and 2016. Nigeria, the largest economy in Africa, depends on crude oil revenues for close to 86% of its foreign exchange earnings and over 60% of government expenditure.
Proactive measures taken by the CBN to raise the interest rate in July 2016 brought down inflation from 17.6% to the region of 11.22% as at June, 2019. The figure recorded in June was 0.18 percent points lower than the rate recorded in May 2019 (11.40%).
Current inflation
According to the recently released data from the National Bureau of Statistics, headline inflation moderated by 60bps to 15.40% y/y in November 2021 – the eighth consecutive month of decline and the lowest since November 2020 (14.89% y/y). The headline inflation print was 8bps higher than the estimate of 15.32% y/y by Cordros capital, with the deviation stemming from the core basket. On a month-on-month basis, the headline CPI reversed the downtrend witnessed in October as it increased by 10bps to 1.08%.
Food inflation slowed by 113bps to 17.21% y/y – the lowest since September 2020 (16.66% y/y). The sustained moderation in the food basket reflects the impact of the favourable base from the prior year.
Accordingly, price deceleration was witnessed across the Farm produce (-164bps to 16.67% y/y) and Processed food (-98bps to 17.36% y/y) sub-baskets.
However, on a month-on-month basis, food inflation rose by 16bps to 1.07% m/m as the festive-induced demand magnified the impact of the below-average primary harvest season.
Notably, the highest price increases in the food basket were recorded in Bread and cereals, Fish, Potatoes, yam and other tubers, Oil and fats, Milk, cheese and eggs and Coffee, tea and cocoa.
Elsewhere, core inflation (+61bps to 13.85% y/y) resumed an uptrend after the moderation recorded in the prior month.
The increase was due to the troika impact of (1) festive-induced demand in the recreation sub-sector, (2) higher energy prices, and (3) pass-through impact of currency depreciation at the parallel market.
Accordingly, the most significant price pressures were recorded in the Restaurants & hotels (+23bps y/y), Education (+18bps y/y), Furnishings & household equipment maintenance (+16bps y/y) and HWEGF (+14bps y/y) sub-baskets. Similarly, on a month-on-month basis, the core index was also up by 46bps to 1.26% (October: 0.80% m/m).
It is expected that the pressure on food prices will be sustained on a month-on-month basis in December as supply challenges coincide with more festive induced demand to widen the supply gap further.
“The Nigerian MPC is also likely to take the bull by the horns at its first meeting in 2022. The US Fed has also commenced scaling back its asset purchase, signalling monetary policy normalisation in 2022. A possible increase in interest rates will push up debt service costs for African countries, increasing the risk of debt default
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Similarly, it is expected that the core inflation index will increase, albeit moderately, on account of the expected mild increase in energy prices amidst stable PMS prices. On balance, the headline CPI is expected to rise by 1.10% m/m, translating to a 59bps moderation in y/y inflation rate to 14.81% y/y in December.
The report of market survey conducted by FDC Limited in Lagos State supported the report from the NBS that food prices recorded a deceleration in the review period.
“Our survey of the Lagos market showed that the price of tomatoes, onions, rice and pepper declined by an average of 22.46% on an annual basis and by 4.72% on a monthly basis,” FDC noted.
However, according to the FDC survey, there was an increase in the price of some commodities with import content.
“On an annual basis, the price of noodles, semovita, flour and sugar increased by an average of 46.49%, largely due to currency pressures and the global commodity price boom but compared to last month, prices declined by an average of 2.34%.”
Inflation in Sub-Saharan Africa
Inflation trend across SSA was mixed. Of the six SSA countries under review in the period, three recorded lower inflation rates while three posted an increase.
As usual, food and energy prices were the major determinants of inflation direction.
It appears that African Central Banks are beginning to adopt a hawkish stance in combating inflation. In November, three of the SSA countries under review increased their interest rates. The Bank of Ghana raised its benchmark interest rate by 100bps, South Africa increased by 75bps while Zambia increased by 50bps.
The Nigerian MPC is also likely to take the bull by the horns at its first meeting in 2022. The US Fed has also commenced scaling back its asset purchase, signalling monetary policy normalisation in 2022. A possible increase in interest rates will push up debt service costs for African countries, increasing the risk of debt default.
Outlook
In spite of the continued moderation in inflation, consumers are jittery about the possible impact of an increase in the price of PMS to N340/litre in February.
Also scarier is the fact that the price of cooking gas has remained stubbornly high at about N12, 000 per 12kg cylinder and diesel is selling for N345/litre.
Inflation is likely to remain elevated in the early part of 2022 before moderating towards the end of the year when the productivity gains from some infrastructure initiatives would have kicked in.
