- Battle with inflation far from over, say experts
For 16 months, Nigeria’s inflation has risen unabated and this negative trend has continued to dampen the appetite of investors in the Nigerian stock market as companies listed on the bourse have struggled to stay afloat.
On Wednesday the National Bureau of Statistics announced that inflation increased again to 33.69 percent.
Midweek transactions on the Nigerian Exchange Limited showed increased investors apathy as investment witnessed yet another setback in the local bourse’s downward trajectory, characterized by significant sell-offs, with 30 losers overshadowing 13 gainers.
The benchmark index retreated by 0.13 percent, closing the session at 97,343.42 points.
This bearish sentiment had a tangible effect, causing a substantial N73.85 billion decrease in market capitalization, translating to a proportional 0.13 percent drop to N55.06 trillion.
Wednesday’s market downturn was influenced by notable declines in key stocks such as FTNCOCOA, PZ, STERLINNG, TIP, and UACN, each witnessing substantial share price drops of -10.00 percent, -10.00 percent, -9.89 percent, -9.78 percent, and -9.76 percent, respectively. Sectoral performance further reflected this bearish sentiment, with the Banking, Insurance, and Consumer Goods sectors each registering losses of 1.67 percent, 0.43 percent, and 0.20 percent, respectively. While the Industrial Goods sector managed a modest 0.003 percent gain, the Oil/Gas sector remained stagnant.
Despite the prevailing negative sentiment, there were slight glimmers of investor optimism, as evidenced by a 15.97 percent increase in total traded volume and a 22.87 percent uptick in traded value, reaching 355.55 million units and N7.14 billion, respectively. GTCO emerged as the most traded security, with 71.87 million units exchanged, amounting to N3.04 billion in value across 544 trades
Financial experts at Cowry Assets Management Limited hinted that the setback witnessed on Wednesday is not unconnected with the dampening inflation released by the NBS.
Commercio Partners Limited in a review of inflation output for April said, “The recent threefold surge in electricity tariffs and rising transportation costs continue to fuel price increases.”
The financial market firm noted that the efforts of the Central Bank of Nigeria to fight inflation with its aggressive monetary tightening stance have failed to yield the desired result as major drivers of inflation are raising transportation costs and a surge in electricity tariffs.
“Nigeria faces a persistent inflationary beast, a challenge that has stretched on for 16 consecutive months. While a glimmer of hope flickers with a slight month-on-month decrease, the decline remains modest. This could be interpreted as an initial response to the Central Bank of Nigeria’s (CBN) hawkish stance, characterized by aggressive interest rate hikes.
Nigeria’s battle with inflation is far from over. The CBN’s actions are a step in the right direction, but the true test lies in their effectiveness in bringing down prices and stabilizing the economy,” Commercio Partner noted.
Commenting further on the efforts of the apex bank at taming inflation, the firm said, “The CBN, to its credit, has thrown heavy punches back. They’ve implemented a staggering 600 basis point hike in the Monetary Policy Rate (MPR) across two moves, reaching a record high of 24.75%, they also have significantly increased the cash reserve ratio for banks, effectively tightening liquidity. This aggressive stance aims to tame inflation.”
On its part, Cordros Securities hinted that inflation will rise further in May. “For context, the naira has begun to weaken against the greenback in the FX market as muted FPI inflows mount fresh pressures on the currency. Consequently, the naira has depreciated by c. 29.0% to a low of NGN1, 520.00/USD in the NAFEM market as of 14 May.
“We expect manufacturers and traders who import their raw materials to reprice their stocks in line with the depreciation of the naira, potentially stoking consumer prices. In addition, we expect the food demand-supply gap to widen primarily due to a depletion of stock from the off-season harvest, potentially stoking food prices.
“For clarity, a report from the Farming Early Warning System (FEWSNET) pointed out that the output from the ongoing dry season harvest was below average due to the high cost of inputs, including fertilizer, improved seeds, and fuel, which subdued planting, and in turn the eventual output. Restricted access to farmlands was also a strong headwind in this regard,” the firm disclosed.
Meanwhile, according to financial pundits at Commercio Partners, the upcoming Monetary Policy Committee meeting is highly likely to see another interest rate hike as the CBN strives to regain control.
“The upcoming meeting holds immense weight. Expectations point towards a further rise in the benchmark interest rate, a necessary step to combat the soaring inflation. The CBN Governor, in a recent interview, confirmed this hawkish approach, emphasizing that high interest rates will remain until inflation is subdued,” it said.
