Analysts predict hike in inflation rate over seasonal effect, Security challenges

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Story by Kayode Tokede

A group of analysts at Financial Derivates Company Limited (FDC)  and FSDH Research have predicted further increase in inflation rate for the month of May over rainy season and security challenges in food producing states in the Northern part of the country.

The National Bureau of Statistics (NBS) in its previous report on Consumer Price Index (CPI) reported 11.37 per cent inflation rate in April from 11.25 per cent in March. Inflation rate according to NBS closed February at 11.31per cent and 11.37per cent in January 2019.

A report by FDC and FSDH research attributed the increase to increase in food prices, due to the seasonality effect typically associated with the onset of the planting season and Security challenges in food producing states.

According to FDC report, “Nigeria’s headline inflation is projected to inch up 0.01per cent to 11.38per cent in the month of May.

“This will be due to a fall in output, evidenced by the sharp drop (16.24per cent) in the output sub-index of the PMI to 49 points in the month of May.

“Planting season shortages contributed to an increase in the price of some commodities like tomatoes, pepper and yam. Notwithstanding, the price of rice and melon declined while garri was flat.

“We are also anticipating a 0.16per cent rise in the month-on-month inflation to 1.1per cent (14.04per cent annualized) in the month of May. Even though the uptick in the headline inflation is expected to be marginal, rising monthly inflation suggests intensification of the inflationary pressures in the months ahead especially with the minimum wage implementation.”

“We expect inflationary pressures to intensify in June as the planting season effect lingers. This could be further heightened by the minimum wage impact, increased forex demand for summer and Hajj. The monetary authority, which is saddled with the responsibility of maintaining price and exchange rate stability, is more likely to be hawkish in its policy decisions,” the report by FDC added.

Similarly, analysts at FSDH research stated that, “We expect the May inflation rate to further increase marginally to 11.39per cent from 11.37per cent recorded in April 2019.

“In addition, we expect the month-on-month change in the Consumer Price Index (CPI) to increase by 1.10per cent in May 2019, the highest since January 2019. With the onset of the rainy season, we have observed upward pressure on the food component of the inflation basket.

“The major driver of the expected increase in the inflation rate is the increase in food prices, due to the seasonality effect typically associated with the onset of the planting season.

“Security challenges in some food producing regions in Nigeria reduce the supply of food items, leading to an increase in prices. The current inflation rate is higher than the six per cent – nine per cent target set by the Central Bank of Nigeria (CBN).

“Given current realities, the inflation rate will remain above the CBN’s target in the short-to-medium-term. This may reduce the real yield on fixed income securities.”

FSDH research noted that one of the ways to reduce Nigeria’s inflation rate in a sustainable manner is to improve the infrastructure in the country.

“Good transport network, good storage facilities, measures to increase farm yields, provision of securities and strategies to ensure linkage between the farmers and the industrial sector will increase the supply of food items, increase profit margin and lower the inflation rate,” the report by FSDH research added.

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