The rate at which prices of goods and services are sold in Africa’s largest economy is seen heading north beyond the officially released May figure at 11.6 percent, due to developments in the domestic agricultural sector which may place upward pressure on prices if not checked.
Data from the National Bureau of Statistics (NBS) on the nation’s Gross Domestic Product (GDP) has shown that the agricultural sector in first quarter 2018, recorded its lowest growth rate in the last 8 quarters since 2016.
In Q1 2018, growth in the Agricultural sector stood at 3 percent, representing a 1.23 percentage points decline when compared with the 4.23 percent growth that was recorded in the last quarter and a 0.39bps fall from the 3.39 percent that was recorded in the first quarter of 2017.
In 2016 it reached 4.1 percent and in 2017, 3.5 percent, while over the past eight quarters the highest growth rate has been 4.5 percent y-o-y in Q3 2016 and the lowest 3 percent in Q1 2018, defying the transformation of the sector which has been the priority of the current and the previous administration
The reason for this decline in the sector is not farfetched, especially given the crisis that is being seen in the northern parts of the country that are major producers of farm products.
“The insecurity challenges in the food producing states in the country may be responsible for this development, and if the trend continues, food supply may drop leading to escalating prices. Thus, both local and imported food prices may place upward pressure on inflation rate,” FSDH said in a report.
On a month-on-month basis, food inflation unsurprisingly rose for the third consecutive month to 1.33 percent in May 2018 from 0.91 percent in the preceding month, given that the first fifteen days of the 30-day Islamic fasting season (Ramadan) elapsed in the month.
In the same vein, price levels for imported food items rose by 6bps to 1.22 percent Month on Month in May 2018 from the 1.16 percent in April.
The Ramadan fast will end tomorrow which means that consumption of product will increase. However, if the slow growth trend seen in the agricultural sector continues, there will be a huge food supply shortage in contrast to the demand which might make food prices to skyrocket.
Analyst at Cardinal stone research said it foresee a further rise in MoM food inflation In June 2018, as the remaining fifteen days of Ramadan would pass in the month.
The rate of Inflation cooled for the 16th consecutive month to 11.6 percent in May from the 12.48 percent that was recorded in last month on the base effect of higher prices in the Composite Consumer Price Index (CCPI) in May 2017 than the current month.
The Monetary Policy committee (MPC), on its 216th meeting and the second for the year voted to retain its repo rate at a record high of 14 per cent for the 10th time since July 2016.
The committee held its gun, in a bid to cushion the effect of election spending, delay in budget implementation, and spiralling inflation which soared to an 11-year high in April 2016, following a big Naira devaluation and an upward review in the retail price of petrol.
This is the third time that the rate of inflation is falling below the monetary policy rate at 14 percent, but still above the Central Bank of Nigeria target of single digit inflation.
“We expect headline inflation to trend lower in the coming months, largely as a result of the relatively high base of the prior year,” Cardinal Stone said in a June 14 note.“However, we expect the downward trend to occur on a much slower pace than what was witnessed in recent months, given the anticipated increase in spending activities that would arise from the passage of the national budget by the President. More so, traditional pre-election year spending and a possible rise in minimum wage are other key threats that can potentially reverse the expected downward trend in headline inflation,”
