Fuel, forex crises push inflation to 4-yr high

…CBN benchmark rate upset

Rising cost of food and transport, occasioned by acute fuel and foreign exchange crises, have combined to stoke up Nigeria’s inflation rate, rising to a near four year high of 12.8 per cent in March, up from 11.4 per cent in February. The National Bureau of Statistics, NBS, in a report released, yesterday, said: “The higher price level was reflected in faster increases across all divisions.” A major development in the inflationary trend is the sustained month-on-month, M-o-M, rise since December 2014 with only October 2015 respite, showing a 15-month consecutive rise. 

The current inflation level is the highest recorded since August 2012 (11.7 per cent). According to the NBS, the acceleration in March Composite Consumer Price Index, CPI, was driven by faster growth rates across all divisions, save for the Restaurants and Hotels division, which increased at a slower pace year-on-year, Y-o-Y, for the second consecutive month. 

The Food sub-Index (Farm Produce and Processed Foods) rose 12.7 per cent Y-o-Y and the Core sub-Index (All items less farm produce) rose to a three-year high of 12.2 per cent Y-o-Y as against 11 per cent growth in February. The fastest increases were recorded in the Imported Food and prices of Energy & Utilities – Housing, Water, Electricity, Gas and Other Fuel division – which rose 15.1 per cent and 15.9 per cent Y-o-Y.

Transportation, Fuel, forex crises induced

NBS report indicates that the Food sub-index grew at a faster pace for the 5th consecutive month as higher transportation costs, which can be broadly attributed to the recurring fuel scarcity, coupled with seasonal changes as well as the lingering foreign exchange, forex, challenges, pressured food prices higher in the month under review. The forex pass-through effect is evident in the 15.1 per cent Y-o-Y and 2.6 per cent M-o-M growth in the Imported Food index.

Implications, analysts’ comments

While explaining the adverse inflationary trend as inevitable, economists in some financial institutions have indicated that the trend would be sustained in short to medium term. According to analysts at SCM Capital Research, an arm of Sterling Bank Plc, “the Nigerian economy is facing its worst economic crisis in decades, fueled by the collapse in crude oil prices at the international markets, which have reduced government revenues, weakened the Naira and caused growth to slow. 

Economists at Financial Derivatives Company Limited, FDC, run by one of Nigeria’s notable economists, Bismark Rewane, stated: “The month of March was unique as the fuel scarcity intensified and higher transport costs filtered through to commodity prices such as beans, tomato and pepper. “While our initial time series analysis projected an increase of 0.4 per cent, the severity and longevity of the prevailing fuel scarcity has distorted price levels.” FDC economists also stated that the dichotomy between urban and rural prices may persist given the impact of rising transport costs and exchange rate pressures on urban prices. 

In its reaction to the latest inflation report, economists at Afrinvest West Africa, a Lagos based financial institution, said ’”although the recorded higher headline and sub-indices inflation level for March are in line with our expectation for the month, broadly lagged analysts’ forecasts, we reiterate that the current inflation trend remains primarily driven by cost–push factors. ”

However, the surprising twist in monetary policy objectives to inflation-targeting at the last MPC, Monetary Policy Committee, of the Central Bank of Nigeria, CBN, meeting an aggressive Open Market Operation of CBN mop-ups raise further questions on the potency of the tools currently being deployed in taming inflationary pressures.

Inflation upsets CBN policy rate

The latest inflation rate has completely upset the monetary policy rate change effected by CBN barely 10 days ago. The apex bank had jerked up its benchmark rate to 12 per cent from 11 per cent principally due to the fact that February 2016 inflation rate at 11.7 per cent had made the benchmark rate negative.

Fuel pump price at all time high

Meanwhile the NBS Premium Motor Spirit, PMS, Price Watch for the month of March has indicated that Nigeria recorded its worst fuel crises in the month under review with national average pump price hitting N135.69 per litre.
Source:Vanguard