The growing anxiety over next month’s general elections appears to be having serious effects on Africa’s biggest economy as annual inflation hit a seven-month high of 11.44 percent, up from 11.28 percent in November, the National Bureau of Statistics said on Wednesday in a report.
“Continued inflation inevitably leads to catastrophe,” according to one famous economist.
In Nigeria, Inflation gets a lot less attention than unemployment and poverty but high inflation is arguably more dangerous to an economy that grew at 0.83 percent in 2018.
Next month’s general election will be crucial for Nigeria whose inflation rate has been rising steadily since July, increasing chances that the country’s apex bank could tighten interest rates at its first meeting of 2019 next week. Also, the price index, which peaked at 18.7 percent in January last year, has been in double digits for three years.
Adetola Adelu, financial analyst at Fides Capital Partners, said the sharp inflation increase recorded between November and December was because of the yuletide season, adding that the coming election also had a role to play in it.
“Based on precedence, we can expect the inflation to go up and there is the actual possibility of interest rate being adjusted between Q1 and Q2 2019,” Adelu said by phone.
Gbolahan Ologunro, financial analyst at CSL Stockbrokers, said the uptick in inflation was in line with market expectation.
“What happened during the festive season was robust demand from consumers which pressured prices as evidenced in the food index. We also saw electioneering spending kicking off in full swing from December as well which could have further put pressure for commodities in the market,” Ologunro said.
BusinessDay analysis reveals that inflation rate between May and December 2014, the period that heralded the 2015 general election, averaged 8.0 percent, which is 3.31 percent points lower than similar period in 2018.
“For H-1 2019, supply shocks will continue to have impact on the availability of commodities in the market. Definitely, increased expenditures on commodities to provide food for campaigns would mean that the demand for commodities, especially staple food, will still remain high,” Ologunro told BusinessDay by phone from Lagos, Nigeria’s commercial capital.
Omotola Abimbola, analyst at Ecobank, disagrees that “election factor” played a role in the inflation rate but noted that the rate was in line with seasonal trend.
“Inflation in Nigeria tends to be a lot more supply-side driven while the stability we are seeing in exchange rate as well as the recent harvest season have reduced the pressures on inflation,” Abimbola told BusinessDay. “Although the elections season would probably result in some spikes in spending, the only way it could affect headline inflation is if we see exchange rate devaluation because the CBN has both the capacity and willingness to defend the exchange rate.”
The NBS on Wednesday also revealed that on month-on-month basis, the headline index increased by 0.74 percent in December 2018, up by 0.06 percent points from the 0.80 percent recorded in November 2018.
On year-on-year basis, urban index surged marginally by 0.12 percent points to 11.73 percent in December, from 11.61 percent a month earlier, while on month-on-month basis, urban index came down by 0.07 percent points to 0.76 percent in the month under focus.
Composite food index appreciated by 0.26 percent points to 13.56 percent in December 2018, compared to 13.30 percent a month earlier. The increase in food index was attributed to increases in prices of cheese and eggs, vegetables, meat, milk, coffee, tea and cocoa, amongst others.
Similarly, food sub-index chalked up by 0.81 percent in the month under review, indicating a 0.09 percent points contraction from 0.90 percent recorded in previous month.
Core inflation rate, which excludes volatile agricultural commodities, remained unchanged at 9.80 percent in December, while core sub-index stood at 0.50 percent, which is 0.18 percent points lower than that of November 2018 (0.68 percent).
Similar trend was equally observed in rural index, which rose slightly by 0.19 percent points to 11.18 percent in December compared to 10.99 percent recorded a month earlier, while on month-on-month basis, the index contracted by 0.06 percent to 0.72 percent.
States with highest inflation rate on year-on-year basis were Bayelsa (13.32 percent), Zamfara (13.32 percent) and Ekiti (13.18 percent), while the ones with the lowest rate include Cross River (8.21 percent), Ogun (8.71 percent) and Kwara (9.21 percent).
On a month-on-month basis, three North-western states, namely Kebbi, Kaduna and Zamfara, had the highest headline inflation rate at 2.18, 1.46 and 1.39 percent. Slowest rise in headline inflation were recorded in Ogun (-0.07 percent), Kwara (-0.02 percent) and Edo (-0.40 percent).
In November, Governor Godwin Emefiele said he expected the central bank’s tight monetary policy stance to continue in 2019, due to the inflation and exchange rate outlooks. He said the short-term outlook for the economy was good and that the country was open for foreign investors.
The Central Bank of Nigeria (CBN) has maintained a tight policy stance since July 2016 when it moved the rate to 14 percent, the highest so far in the country’s history. However, fears of increased inflationary pressure stoked by election spending, the proposed increase in the minimum wage as well as the likely deregulation of fuel prices, have concerned analysts as they estimate that the inflationary pressure would start building up towards the end of Q1 2019.
Leading contestant, Buhari, 75, says he will continue to fight corruption and expand his socialist intervention programmes if re-elected, while Atiku, 72, says he will focus on key economic reforms, from ending a system of multiple exchange rates to privatising opaque state oil company, NNPC, in a bid to revive an economy still reeling from the 2014 crash in crude prices.
DIPO OLADEHINDE, SEGUN ADAMS, ISREAL ODUBOLA & GBEMI FAMINU
