Nigeria’s inflation declines for the first time in 20 months
Nigeria’s headline inflation declined marginally for the first time in 20 months to 18.12 per cent in April. The inflation data comes ahead of the expected first quarter report and the May Monetary Policy Committee meeting. Jolomi Odonghanro, Head of Research at Cordros Capital joins CNBC Africa for more.
Tue, 18 May 2021 15:06:00 GMT
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AI Generated Summary
- The marginal decline in Nigeria's headline inflation rate to 18.12% in April marks the first such decrease in 20 months, attributed to a high-base effect and front-loading of consumer purchases before Ramadan.
- The impending Monetary Policy Committee meeting raises expectations for a return to the inflation uptrend, with projections of a proposed 50 basis point increase in the Monetary Policy Rate.
- Challenges in the agriculture sector, including security concerns hindering farmers, have significantly impacted food prices, underscoring the need for structural reforms alongside monetary policy interventions.
Nigeria recently saw a marginal decline in its headline inflation rate for the first time in 20 months, dropping to 18.12 percent in April. This significant data release has set the stage for the anticipated first quarter report and the upcoming May Monetary Policy Committee meeting. Jolomi Odonghanro, the Head of Research at Cordros Capital, joined CNBC Africa to analyze and provide insights on this crucial development. The dip in inflation has been attributed to a high-base effect, likely influenced by the Easter and Ramadan holidays. However, the unexpected outcome in food prices was primarily due to consumers front-loading purchases before Ramadan, ultimately averting a significant spike in food prices during the festive period. Looking ahead to May, experts predict a rise in food inflation, driven by consumers' limited real income and escalating costs, projecting a 16 basis points increase to 19.08%. The focus now shifts to the Central Bank Governor's impending comments during the Monetary Policy Committee meeting, where expectations loom for a return to the inflation uptrend over the last two years. The possibility of a monetary policy tightening cycle reinforces concerns over price levels, with a projected 50 basis point increase in the Monetary Policy Rate. The agriculture sector's challenges, exacerbated by security concerns hindering farmers' return to their fields, have significantly impacted food prices, prompting consumer wallet constraints. Despite the Central Bank signaling inflation as a structural issue rather than a monetary one, the anticipated tightening phase aims to boost savings, potentially moderating inflation. Nevertheless, the efficacy of monetary policy remains limited in addressing the fundamental structural problems fueling inflation. Additionally, the fiscal authority may play a crucial role in alleviating inflationary pressures. Looking ahead, expectations for the GDP data reveal a 0.94% year-on-year growth forecast for Q1, driven by resilient performances in the agricultural and manufacturing sectors amid rising operational costs. A robust projection of 6.1% year-on-year growth in Q2 indicates a promising economic outlook, supported by favorable base effects. The growth trajectory remains positive, paving the way for a potential economic resurgence in the coming months.