Nigeria’s inflation rate recorded its slowest increase in April.
It is the lowest margin of hike in the last one year, and indication that headline inflation is receding.
The rate outperformed the expectations of economic experts and analysts, who anticipated higher increase and raising hopes that spiraling consumer prices might be on a gradual decline.
The National Bureau of Statistics (NBS) yesterday released its latest inflation report showing that Consumer Price Index (CPI) rose by 0.49 percentage points to 33.69 per cent in April, as against 33.20 per cent in March. It is the slowest increase since June 2023, when it rose by 38 basis points.
Analysts had predicted inflation rate would rise by more than 100 basis points to cross the 34 per cent level.
The NBS report showed that month-on-month inflation eased by 73 basis points to 2.29 per cent in April 2024 as against 3.02 per cent in March 2024. The deceleration was attributed to naira appreciation during the period.
Managing Director, AIICO Capital, Mr. Femi Ademola, said there could be further slowdown of inflation by the second half of the year if government addressed structural issues fuelling price increases.
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According to him, the increase in inflation is partly a reaction to high liquidity in the system and the structural issues that abound with the country.
“While the CBN’s monetary tightening is trying to resolve the liquidity driven inflation, there is usually a lag period before the effect is felt. In addition, the structural issues appear to impact inflation more than the monetary issue.
“For example, the prevailing insecurity is negatively affecting farming and food production while cost of doing business is creating cost-push inflation. The high interest rates due to the CBN tightening would also add to the cost of doing business and by extension, inflation in the near term.
“At this time, it would appear that the solution to inflation would be to deal with the structural issues as monetary policy is limited in its actions. Studies show that the monetary actions can only affect inflation up to 48 per cent and that’s in the long run. So we can expect little moderation in inflation by the second half of the year,” Ademola said.
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Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said the persistent inflationary pressures in the economy remains a major cause for concern because of the implications for purchasing power and operating costs for businesses.
He however noted that it was a good news to see “the decline in the month on month inflation both for headline inflation and food inflation”.
Yusuf outlined that the key inflation drivers were yet to significantly moderate including the naira exchange rate, transportation costs, logistics challenges, insecurity in farming communities and structural bottlenecks to production.
He said these supply side issues are being addressed by the fiscal authorities.
“Meanwhile the exchange rate benchmark for the computation of import duty continues to be a major concern to businesses as it has become a major inflation driver.
“We again urge the CBN to peg the rate at between N800 and N1,000 per dollar to be reviewed quarterly. This is necessary to reduce the pass through effect of heightening trade cost on inflation.
“The commencement of domestic refining of petroleum products by the Dangote Refinery is a remarkable upside for the economy. It is expected to have a considerable moderating effect on energy costs and inflation in the near term,” Yusuf said.
He urged the Monetary Policy Committee to soften its monetary tightening stance for the time being noting that businesses are yet to recover from the shocks of the recent bullish rate hikes.
According to him, the monetary instruments should be put on pause while fiscal policy tools address supply side factors in the inflation dynamics.
Analysts at Cordros Capital Group said the inflation rate outperformed the surge expectations by most analysts, showing the lowest price increase in recent period.
CardinalStone noted that while price pressures remained prevalent, “it appears that inflation may be nearing its peak, with the sustained month-on-month moderation of the headline inflation”.
Afrinvest West Africa said the inflation rate was “slower” than its forecast, noting that it was the first time since October 2023 that price levels would moderate across board from one month to another.
Precisely, month-on-month headline rate dropped to 2.3 per cent in April 2024 from 3.0 per cent in March 2024. Food and core inflation sub-basket rates fell by 111 basis points and 80 basis points to 2.5 per cent and 2.1 per cent respectively.
SCM Capital stated that it expected inflation rate to remain elevated but at a slower rate, noting that the Central Bank of Nigeria may consider further rate hike.
Financial Derivatives Company (FDC) said the inflation rate fell below its projection that consumer prices would jump, possibly because the outcome of the national data did not take into consideration petrol scarcity.
FDC noted that while May’s inflation reading would capture the effect of petrol scarcity, it may not be as profound as the effect of petrol scarcity was confined to major cities and did not last very long, thus the impact on inflation would likely be transient and not fundamental.
FDC stated that the renewed pressure on naira, and the heightened food prices which are further exacerbated by seasonality are the major stoking factors.
“The sustained uptick in the general price level was mainly due to a surge in the food basket, which increased by 0.52 per cent to 40.53 per cent. This is not surprising as the second quarter is typically the peak of the planting season. Some of the commodities that witnessed the highest spikes are millet flour, Garri, bread, yam and other tubers, vegetable oil, and fish. Core inflation moved in tandem with food inflation, increasing by 0.94 per cent to 26.84 per cent from 25.90 per cent. This implies that Nigeria’s inflation is more structural than transient,” FDC stated.
According to FDC, two major uncertainties have impacted inflation expectations and psychology in the past few months. These included the price of diesel and naira misalignment in the foreign exchange (forex) market. The price of diesel declined by 29.41 per cent to N1,200 per litre from N1,700 per litre while the exchange rate appreciated by 82 per cent.
“After the CBN policy implementation in February, there was a noticeable decline in the month-on-month inflation by 10 basis points in March and another 73 basis points n April. CBN is right on track with what needs to be done to rein in inflation,” FDC stated.
The Nation had earlier reported experts’ consensus on the need for the government to show a stronger determination and concerted efforts to tame inflation, noting that the apex bank’s monetary tightening tools have neared their useful end in tackling the spiraling inflation.
After a marathon Federal Executive Council (FEC), President Bola Tinubu, this week rolled out some 21 strategic initiatives aimed at boosting the economy and strengthen it for sustainable growth.
President, Association of Capital Market Academics, Professor Uche Uwaleke, said the government needs to deal decisively with insecurity to reduce the hemorrhage across all facets of the economy.
“It’s obvious that monetary policy tools have reached the end of their tether. There is little the CBN can achieve by aggressively increasing the Monetary Policy Rate (MPR). This is so because the major factors driving inflation are non-monetary.
“I think it is time the fiscal authority took over the driving seat in the journey to tame inflation. The government needs to deal decisively with insecurity including crude oil theft. The efforts to fix refineries and reduce fuel imports need to be prioritised. The hike in electricity tariff should be suspended. In this connection, I commend the President for ordering the suspension of the implementation of the cybersecurity levy.
“In the meantime the government can import food items in order to crash food prices given that the inflationary pressure point is on food. The number of CNG buses the government plans to roll out needs to increase significantly,” Uwaleke said.
Bismarck Rewane’s FDC, while noting that the sustained increase in inflation expectations will continue to be a significant consideration by the CBN in deciding the direction of the MPR, it pointed out that such approach could be a double-edge sword with potential to hurt the economy.
“As the CBN has limited tools to deliver price stability, the intention will be to keep raising rates. However, this strategy, while potentially beneficial for fixed-income investments, poses challenges for private investors seeking credit for business expansion. This crucial aspect directly impacts productivity growth, as businesses face higher borrowing costs, potentially stifling investment and innovation.
“Moreover, the looming trade-off becomes evident during inflationary periods, where the burden of servicing high-interest debt exacerbates economic shocks. It becomes paramount to weigh the consequences of persisting with elevated interest rates. To prevent the economy from overheating and mitigate the risk of raising poverty lines and shrinking productivity,” FDC stated.
Managing Director, Arthur Steven Asset Management, Mr. Olatunde Amolegbe said the pace of inflationary trend could slow down in the next few months if government shows a more assertive policy implementation, that focusses on addressing inflationary flashpoints.
“It’s clear now that we are getting close to the limit of what monetary policies can do to slow down inflation, we therefore need to tackle the major structural issues.
“We need to strengthen our security architecture to enable farmers go back to the farm safely as well as incentivising large-scale agricultural production. We also need to increase storage capacity while addressing challenges of transportation in order to improve routes to market for farm products.
“Improved liquidity will need to come from high crude oil production which will mean higher dollar inflows and higher local refining of locally consumed fuel. These will not only help to stabilize the foreign exchange market,” Amolegbe said.
Managing Director, HighCap Securities, Mr. David Adonri, said government must step up efforts to close the supply gap.
“Taming inflation has gone beyond monetary policy tools. Closing the supply gap which is the cause of galloping inflation requires fiscal policy and restoration of farm security,” Adonri said.
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