Nigeria’s inflation target of 6-9 percent preferred band might be under threat as analysts polled in a BusinessDay survey say it is unlikely for the rate to hit the single digit line in 2018.
Security issues in food producing states in Nigeria coupled with the wearing base effect are the reasons why the analysts do not see the inflation rate in Africa’s largest economy sliding into the single digit band.
“Single digit inflation rate is unlikely to be reported in 2018, this is because of the rising crisis in food producing states in the country. Looking at the impact of food prices on inflation in the month of June, it accelerated the highest since January this year.
“So, it is unlikely for us to record single digit inflation rate this year unless something drastic happens, although the rate will continue to drop but single digit is most unlikely,” Ayo Akinwunmi, head of research at FSDH Merchant Bank, told BusinessDay.
The projection of Wale Okunriboye, head, investment research at Sigma Pensions, was not different as he said it was not likely for inflation rate to hit a single digit in the year under review.
“This is because the key factor that has been driving inflation down this year is base effect, and the base effect ends in July, that is when it finishes and so after July you will no longer see base effect driving inflation down. Inflation rate is likely to stay around 10 to 11 percent for the rest of 2018, unless harvest this year is exceptional, other than that it will remain on that level,” Okunriboye said.
Meanwhile, according the figures reported by the National Bureau of Statistics (NBS), the rate at which the prices of goods and service in Nigeria increase declined marginal year-on-year to 11.23 percent in June from 11.61 percent the previous month.
Although on month-on-month basis, the headline index increased by 1.24 percent in June 2018, up by 0.15 percent points from the rate recorded in May of same year.
“I do not see inflation rate dropping to a single digit. Our projection is that inflation will decline for the last time this month and after that it will start going up again. Already month-on-month inflation rate is going up which is more current than the year-on-year comparison,” Bismarck Rewane, managing director of Financial Derivative, said.
However, Tajudeen Ibrahim, head of research at Chapel Hill Denham Securities, shared a different view as he said inflation rate would move down to single digit but on a temporary basis.
“Inflation rate may stand at a single digit for a month or two and it will be slightly below 10 percent. This is likely to happen in October,” Ibrahim disclosed.
Meanwhile, the nation’s Bureau is due to release the inflation figures for the month of July on the 15th of August 2018, as compiled from the NBS report calendar. Okunrinboye however projected the rate to be around 10.8 percent for the month of July.
Okunrinboye of Sigma Pension explained how month-on-month inflation in Nigeria usually picks up between June -July, considering they are the peak last months in the lean season.
“Because of that, food prices are usually high and after that, harvest comes in, that is in August and month-on-month it leads to declining food prices in the period, because when harvest comes, food prices drop,” Okunrinboye said.
In regards to how harvest may impact inflation rate in Africa’s most populous nation, Akinwunmi of Merchant Bank said it is what one plant that he will harvest.
“Farmers left their farm lands because of the crisis resulting from the Fulani Herdsmen clashes, and as such if farming activities were left during the planting season, it means during the harvest season, what was not sowed will not be reaped,” Akinwunmi said.
According to the first quarter Gross Domestic Product (GDP) report, the growth rate for agricultural GDP recorded for Africa’s largest exporter of crude oil was the least agricultural growth rate in 18 quarters.
Analysts linked this to the insecurity issues in the food producing state in Nigeria.
Meanwhile, the Nigerian economy expanded positively by 1.95 percent in the first quarter of 2018, compared with the -0.91 percent in the first quarter of 2017, an increase of 2.87 percent points.
The 2018 first quarter growth accounts for the fourth successive positive expansion since Africa’s largest economy existed its worst recession in more than two decades, resulting from the decline in oil prices, which the country largely depends on for revenue.
The upward trajectory of the global oil prices and the increase of production in Nigeria led by the relative peace enjoyed in the oil-rich Nigeria Delta fuelled the country’s emergence from the state it was until the second quarter of last year.
Meanwhile, the analysts’ projection of inflation rate for the year may have also given a lead clue as to whether or not the Monetary Policy Committee (MPC) will continue to hold interest rate at 14 percent, like it has done for more than two years now.
“It is possible they will continue to hold rate considering their decision in the last MPC meeting but there is need for easing monetary policy to stimulate growth, as the fragile economic growth have more over riding impact on the whole economy than the 10 or even 11 percent inflation rate that we are talking about,” Akinwunmi concluded
The MPC had said in the past that it maintained the interest rate in order to control the rising inflation rate. But inflation rate has since decline below the MPR rate.
