Prices paid by Nigerians for goods and services decelerated for the first time in two years in April, beating analysts’ expectations.
Inflation has been accelerating since September 2019. However, the April inflation means that Nigerians spent less on purchasing goods and services, compared to March.
From a month earlier, Nigeria’s consumer price index (headline inflation), which measures the rate of increase in the prices of goods and services, slows in April to 18.12 percent from 18.17 percent in March 2021, according to an inflation report released by the National Bureau of Statistics (NBS) on Monday.
A five-analyst poll by BusinessDay had projected Nigeria’s inflation rate to quicken to 18.7 percent in April on the back of prolonged insecurity and weak dollar shortage. It slowed after accelerating for 19 consecutive months to March 2021.
“This came as a big surprise; however, this can be attributed to the base effect,” Ayodeji Ebo, head, retail investment, Chapel Hill Denham, said.
According to Ebo, the figure was surprising because insecurity, which is a major drag on distribution, was expected to impact input prices and transportation cost.
Nigeria’s food inflation, the main driver of the country’s headline inflation, slowed last month after hitting its highest levels in over 12 years in March. It decelerated to 22.72 percent in April from 22.95 percent the month before.
“The slowdown in food inflation was driven by weaker food demand in April, as consumers front-loaded on food items in March ahead of Ramadan in anticipation of a price surge,” Ayorinde Akinloye, investment research analyst at United Capital, said.
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The rise in the food index was caused by increases in prices of coffee, tea and cocoa, bread and cereals, soft drinks, milk, cheese and egg, vegetable, meat, oils and fat, fish and potatoes, yam, and others.
On a month-on-month basis, the food sub-index increased by 0.99 percent in April 2021, down by 0.91 percentage points from 1.90 percent recorded in March 2021.
“Prices of food items rose significantly last year due to the lockdown that started in April 2020,” Ebo said.
A breakdown of the NBS report shows that on a month-on-month basis, the Headline Index increased by 0.97 percent in April 2021; this is 0.59 percent rate lower than the 1.56 percent recorded in March 2021.
Although Nigeria’s inflation rate slowed in April after hitting a four-year high in March, the last month’s inflation rate is the second-highest since January 2017 after the 18.17 percent reported in March.
“The deceleration in headline inflation was broadly supported by the slowdown in the Food and Energy baskets,” Akinloye pointed out.
According to the report by the state-funded bureau, the ‘All items less farm produce’ or Core inflation, which excluded the prices of volatile agricultural produce stood at 12.74 percent in April 2021, up by 0.07 percent when compared with 12.67 percent recorded in March 2021.
On a month-on-month basis, the core sub-index increased by 0.99 percent in April. This was down by 0.07 percent when compared with 1.06 percent recorded in March 2021.
The highest increases were recorded in prices of pharmaceutical products, vehicle spare parts, hairdressing salons and personal grooming establishment, garment, furniture and furnishing, medical services, shoes and other footwear, motor cars, major household appliances – whether electric or not, dental services, hospital services, non-durable household goods and fuel and lubricants for personal transport equipment.
Further breakdown of the report reveals that the urban inflation rate accelerated by 18.68 percent year-on-year in April 2021 from 18.76 percent reported in March 2021, while the rural inflation rate quickened by 17.47 percent in April 2021 from 17.60 percent in March 2021.
On a month-on-month basis, the urban index rose 0.99 percent in April 2021, down by 0.61 percent the rate recorded in March (1.60%), while the rural inflation rate also rose by 0.95 percent last month, down 0.57 percent from the rate that was recorded in March (1.52%).
In the month under review, all items inflation on a year-on-year basis was highest in Kogi (24.33%), Bauchi (22.93%) and Sokoto (20.96%), while Abia (15.94%), Kwara (15.70%) and Katsina (15.58%) recorded the slowest rise in headline inflation.
Food inflation on a year-on-year basis was highest in Kogi (30.52%), Ebonyi (28.07%) and Sokoto (26.90%), while Abuja (18.63%), Akwa Ibom (18.51%) and Bauchi (17.64%) recorded the slowest rise.
Implication
While the impact of the first slowdown in Nigeria’s inflation rate in two years may be marginal, it, however, means that there will be a slowdown in the negative real return on investment.
Fixed-income investors seeking high yielding returns on their investments on the less risky government treasury bills had little to cheer at the last auction, as the uptick in T-bill rates was unable to shield them against Nigeria’s rising inflation.
While inflation-adjusted return on the 91-day, 182-day and 364-day bills were -17.17 percent, -14.67 percent and -11.17 percent, respectively, in March when inflation was 18.17 percent, the April figures mean there is a marginal appreciation to -15.62 percent, 14.62percent and 8.37 percent, respectively.
Stop-rates for the three bills stood at 2 percent, 3.5 percent and 7 percent in March, and were 2.5 percent, 3.5 percent and 9.75 percent in April.
