Comercio sees Nigeria's inflation higher on cost pressures

A recent report by Comercio Partners has shed light on the economic landscape of Nigeria, offering insights into the factors that are likely to shape the country's economic growth and inflation levels in the coming months. Olaide Ogundeyi, Team Lead, Advisory at Comercio Partners, joined CNBC Africa to provide a detailed analysis of the report findings. One of the key projections highlighted in the report is the expectation of higher inflation in Nigeria, driven primarily by pressures stemming from food supply constraints and the lingering cash crunch experienced throughout March. Despite these challenges, the report also points out the potential for improved economic activities to stimulate GDP growth above 4 per cent. Ogundeyi elaborated on the factors impacting Nigeria's economic performance, emphasizing the significant role of the oil sector in driving GDP growth. He noted that the rebound in oil production and the surge in global oil prices could contribute to a substantial boost in GDP this year, projecting an average production of 1.6 million barrels per day with prices hovering around $80 per barrel. While acknowledging the positive outlook for the oil sector, Ogundeyi also highlighted potential headwinds that could affect the service sector and overall economic momentum. He mentioned that inflation levels would play a critical role in determining the resilience of the service sector, pointing out that excessive inflation could dampen growth prospects. However, he expressed optimism that a stable inflation rate and prudent monetary policies could help sustain economic expansion. In addition to discussing the oil and service sectors, Ogundeyi shared insights on the financial markets in Nigeria, including equities, fixed income instruments, and Eurobonds. He highlighted the positive performance of equities in the first quarter of the year, attributing it to improved corporate profits and favorable GDP growth prospects. He also noted the challenges faced in the fixed income market due to liquidity fluctuations and rising yields. When addressing the outlook for Eurobonds, Ogundeyi pointed out that the current global interest rate environment, particularly in the US, could limit the issuance of Eurobonds by emerging markets. He suggested that high-interest rates could persist in the Eurobond market, affecting borrowing costs for countries like Nigeria. As the discussion turned to inflation projections and monetary policy responses, Ogundeyi compared the inflation dynamics between Nigeria and Ghana. While Ghana has made progress in reducing inflation rates, Nigeria continues to grapple with inflationary pressures exacerbated by factors such as security challenges and potential removal of subsidies. Ogundeyi highlighted the need for robust policy measures to address inflation concerns and achieve sustainable economic stability. Looking ahead, Ogundeyi emphasized the importance of closely monitoring inflation trends and the impact of external factors on Nigeria's economic performance. He noted that the upcoming months would be crucial in determining the trajectory of inflation and the corresponding policy responses from the Monetary Policy Committee. In conclusion, the Comercio report provides valuable insights into the challenges and opportunities facing Nigeria's economy, underscoring the need for proactive measures to address inflation and support sustainable economic growth.