Inflation surge unlikely to raise interest rate

The first increase in Nigeria’s inflation rate in nine months is unlikely to lead to a hike in interest rates when the Monetary Policy Committee (MPC) meets next week.

Nigeria’s headline inflation accelerated for the first time in nine months last December, settling at 15.63 percent in December 2021, from 15.40 percent in the previous month, data from the National Bureau of Statistics (NBS) show.

The NBS in a Consumer Price Index report released on Monday attributed the marginal increase to higher demand during the yuletide, which pushed prices up.

“Despite the uptick in December inflation, we do not expect this to have a significant impact on Central Bank of Nigeria’s (CBN) Monetary policy,” Razia Khan, managing director, chief economist, Africa and the Middle East, Global Research, Standard Chartered Bank, said on Monday.

The removal of COVID-19 era monetary measures later in 2022 will be of greater relevance than any (less impactful) monetary policy rate changes, she said.

The CBN kept Monetary Policy Rate (MPR) at 11.5 percent and other indicators unchanged at the last meeting in November following a sustained gradual recovery of key macroeconomic indicators. This is as inflation moderated for the seventh successive month, buoyed by a deceleration in the core and food components of inflation.

Taiwo Oyedele, an economist and head of tax and corporate advisory services at PwC Nigeria, said the acceleration in inflation rate must have been as a result of the high demand during the yuletide, which was not matched with increased production and other supplies. This is in addition to the insecurity challenges across the country that continues to impact negatively on transportation and food supply, major components of the Consumer Price Index (CPI).

“I do not expect the acceleration in inflation rate to impact on the MPC’s rate decision at their next meeting given that the acceleration is likely to be transitory,” Oyedele said.

Pressure on Nigeria to increase interest rates is likely to come from global rising interest rates.

Following the highest annual US inflation reading since 1982, more Federal Reserve officials are signalling support for a hike as soon as March.

“This implies that the MPC may raise interest rates earlier than anticipated,” Ayodeji Ebo, head, retail investment, Chapel Hill Denham, said.

Read also: Inflation may be driven beyond the projected 13% in 2022

While the inflation rate was pushed upwards majorly by food inflation in December, there are several pressure points that will lead to higher inflation this year from taxes, removal of electricity subsidy, electricity tariff, and election spending, Ebo said. This will impact consumers’ purchasing power and investors will be in search of investment with higher yields.

The headline inflation rate is expected to moderate to 15.35 percent, and 14.91 percent by December 2021 and February 2022, respectively, Godwin Emefiele, governor, CBN, said at November 2021 bankers’ dinner.

The inflation outturn was mainly driven by food inflation, as festive induced spending drove the month-on-month (MoM) uptick to 2.20 percent (2x higher than November’s MoM food inflation rate).

“We link the food price pressures to the continued uptrend in Automotive Gas Oil (AGO) prices (+9.4% MoM), which might have translated to higher haulage costs for agricultural produces,” analysts at CardinalStone Research, said in a report.

The report noted that core inflation increased marginally by 2bps to 13.87 percent YoY, reflecting continued price pressure on cooking gas and AGO. Notable price increases were seen on 93 percent of the core inflation sub-components, with alcoholic beverages, tobacco and kola (+55bps), and housing, water, electricity, and other gases and fuel (+55bps) leading the pack.

“As highlighted in our 2022 economic outlook, we expect inflation to moderate for most of H1’22 due to the high base effect.”

However, the analysts said the base effect should begin to wane in May 2022, leaving legroom for price worries to become more evident on a MoM basis.

Nigeria inflation quickens for first time in nine months

Nigeria’s headline inflation has accelerated for the first time in nine months, settling at 15.63% in December 2021.

The headline inflation is about 0.2 percent higher than the 15.40 percent in November 2021, but a decline from 15.75 percent recorded about the same period in 2020.

An analysis of the trend indicates that headline consumer price decelerated to 18.12% in April 2021, 17.93% in May; 17.75% in June; 17.38% in July; 17.01% in August; 16.63% in September; 15.99% in October, and 15.40% in November.

According to the NBS, food inflation settled at 17.37% in December as against 17.21% the previous month.

Core inflation during the period also slightly went up to 13.87% as against 13.885%.

Urban Inflation for December was 16.17%, while November recorded 15.92%. On the other hand, Rural Inflation was 15.11% and 14.89% in December and November 2021, respectively.

On state-by-state comparison, consumer prices accelerated the most in Ebonyi State with 18.71%, while Kwara State recorded the slowest with 12.32%.

On the other hand, Food Inflation was highest in Kogi State with 22.82%, while Edo State was the lowest with 13.24%.

“If you check the trend, you will discover the increases in the month of December, and that is because every Nigerian saves money for December purchases. So that has the tendency of increasing the prices of a lot of commodities, and that affected the numbers that are collected from the field.

“That also explained why we could not maintain a trajectory of consistent decline in the numbers,” the new statistician general, Simon Harry, said, speaking on the CPI report.

On the inflation projections for 2022, Harry stated, “Again, I will say that if you go through the trend you will discover that after the rise in December, the demand of goods in January begins to go down and as demand goes down, you discover that the price of goods begin to go down.

“And so that also has the tendency to affect the numbers collected from the field. So, we may return to a gradual decline from the month of January, which certainly will be below the 15.63 percent we are recording.

“I won’t be able to mention a specific figure but I can assure you that as demand wanes, the inflation rate will be brought down.”

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