After nearly two years of galloping headline inflation rate, analysts are projecting that the storm will calm in July on the federal government’s tariff suspension on food importation.
Nigeria’s annual inflation rate ticked up as expected to 34.19 percent in June due to rising food prices, making it the fourth highest inflation rate ever since 1996.
The turnaround from three consecutive broad-based declines in March, April and May month-on-month headline figures to an increase of 0.17 percent in June 2024 negates many analysts’ projections.
Read also: Food prices edge Nigeria inflation to 34. 19%
CardinalStone analysts said the government’s decision to suspend duties, tariffs and taxes on the importation of certain commodities such as maize, husked brown rice, wheat, and cowpeas for the next 150 days is expected to lead to lower food prices.
“The government’s plan to import 250,000 metric tons (MT) of wheat and 250,000 MT of maize also bodes well for the food price outlook, providing a positive counterbalance to the inflationary risks,” they said.
“Overall, we expect headline inflation to moderate by 50 basis points to 33.7 percent,” they added.
Olaolu Boboye, lead economist at CardinalStone Research, said the base effect of inflation suggests that inflation peaked in June and will cool inflation in July.
“Inflation in July will see three major pressure points which are hike in fuel price pressure due to the scarcity, exchange rate pressure, sustained food pressures but won’t be enough to max the benefit from base effect,” Boboye said.
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Base effect is the impact which the choice of a different reference point for a comparison between two data points can have on the result, says Investopedia.
Nelson Abudah, a research analyst at Afrinvest, projected a softer month-on-month expansion of 2.07 percent in the headline rate for July due to slow down in food prices plus high base year effect.
“It will be driven mainly by moderation in the food inflation print to 2.21 percent. As a result, we estimate the year-on-year headline inflation to slow down to 33.12 percent in July,” he said.
“Month-on-month inflation would need to hit at least 2.8 percent for it to outweigh the base effect. Hence an increase in headline inflation and judging by our prediction for month-on-month, we do not see that happening,” analysts at Afrinvest further said.
The Monetary Policy Committee (MPC) is set to hold its bimonthly meeting on July 22 and 23, where it will decide the interest policy.
Boboye projected that there will be a hike in the monetary policy rate (MPR) of about 50-100 basis points when the MPC meets next week.
Samson Simon, an Abuja-based economist and financial analyst, said July inflation growth should decelerate considering the harvest that is beginning to come in.
“For MPC meeting in July, the members would likely become less hawkish so 50 to 100 bps is probable.”
Abudah of Afrinvest said given the recent data that showed a rise in month-on-month inflation in June, the MPC may lean towards a 50-100 bps hike.
This would demonstrate the MPC’s commitment to curbing inflation while not being so drastic as to shock the economy, he noted.
“The committee has previously cited March-May declines as evidence that their hawkish stance is yielding results. However, with June showing an increase, they may feel pressured to act more aggressively. However, we believe that further tightening would continue to mar businesses’ ability to access funds,” he said.
The pressure on June’s figure was broad-based as the food and core inflation baskets increased by 21 basis points and 36 basis points to 40.87 percent and 27.40 percent, respectively.
“We do not expect aggressive rate hikes like previous meetings but we project a 50-75 basis points hike next week,” Nabila Mohammed, investment analyst at ChapelHillDenham, said.
“Both food and core inflation saw month-on-month increases. The trajectory for inflation is uncertain despite the base effect. Fuel prices, food production, FX and sentiment will continue to drive price levels,” said Samuel Sule, CEO of Renaissance Capital Africa.
Food inflation rose by 15.84 percent to 40.87 percent, year-on-year. This was a result of an increase in the rate of the average prices of potatoes, yam and other tubers, bread and cereals, fish, meat, fruit, coffee, tea, and vegetables.
Analysts at Commercio Partners in their inflation report on Monday said that food inflation – the main driver – is expected to taper off because of the short-term federal government’s recent interventions, with a N2 trillion packages announced by Abubakar Kyari, minister for agriculture and food security, aiming to curb rising prices and speed up stabilisation and growth.
The NBS stated that the top five contributors of inflation are food & non-alcoholic beverages, 17.59 percent; housing, water, electricity, gas & other fuel 5.68 percent, clothing & footwear, 2.60 percent; transport, 2.21 percent; and furnishings & household equipment & maintenance, 1.71 percent.
Analysts at Coronation Research said in their report on Monday that, “We expect a rise in the Monetary Policy Rate (currently 26.25% pa) of between 50 and 100bps, given the rise in annual inflation from 33.95% in May to 34.19% in June (reported today).”
