Nigeria risked a higher inflation rate following a recent pronouncement on foreign exchange (forex) restriction but that was offset by increased food supply which trailed the harvest season, moderating the country’s inflation rate for the third straight month in August 2019.
Nigeria’s measure of composite changes in the prices of consumer goods and services purchased by households decelerated by 11.02 percent on a year-on-year basis in August 2019 from 11.08 percent in July, according to data released Tuesday by the National Bureau of Statistics (NBS).
The August headline inflation, which is the lowest since January 2016, was driven by sustained moderation in the sub-indices that track price changes of food items and all other items. This is despite President Muhammadu Buhari’s directive to the Central Bank of Nigeria (CBN) in the month to stop providing forex for food imports.
Food inflation rose at a slower pace of 13.17 percent in August compared with 13.39 percent increase recorded in the preceding month, while the measure of inflation of all items excluding agriculture produce rose by 8.68 percent in the review month as against 8.80 percent recorded in July.
“We attribute the observed softening in food price pressures to the positive impact of early harvests, which kept markets well supplied even in the lean season,” analysts at Lagos-based investment house, CardinalStone, stated in a report seen by BusinessDay. “The moderation in core inflation coincided with tamer price increments in clothing & footwear and Alcoholic beverage, Tobacco & Kola sub segments.”
In addition, the Federal Government partially closed Nigeria’s border with Benin Republic on August 20, but the statistics bureau claimed the 11-day closure period to the end of the month was not enough to impact on prices, noting that inflation rate was the average prices for the whole month and not only the price of goods and services in the last few days of the month.
Analysts at United Capital plc felt otherwise. According to them, the slowdown in the core inflation sub-index could be attributable to the partial closure of the border. This “affected smuggling of petroleum products negatively, buoyed domestic supply of the products and reduced pressure on prices”, the analysts said.
The inflation rate declined by 0.99 percent in the review month on a month-on-month basis from 1.01 percent, as all major components of the country’s headline inflation witnessed sluggish increase for the third consecutive month in August.
The macroeconomic index was highest in states such as Kebbi, Kano and Bauchi having recorded average price increases of 14.97 percent, 13.24 percent and 13 percent, respectively. On the flipside, Cross River, Delta and Kwara were states with the lowest inflation figures with corresponding increases of 8.97 percent, 8.63 percent, and 8.32 percent for the review month.
Highest price increases were recorded on basic food items such as oil and fats; fish; meat; bread and cereals; and potatoes, yam and tubers, according to NBS. However, the Famine Early Warning Systems Network said harvests are expected to be above average, except in the conflict-affected areas of the northeast, northwest and north central parts of the country.
In spite of this, the sustainability of the country’s slowing inflation rate remains a concern following the border closure and the implementation of the restriction of forex for imports of dairy products and food items.
“We expect these developments to overshadow the supply of new produce from the ongoing harvest season,” United Capital’s analysts said in a note to clients.
These would likely place upside risks on food inflation sub-index and heighten headline inflation pressures, two developments that could reverse the three-month moderation in the general prices of goods and services in the country.
OLUWASEGUN OLAKOYENIKAN
