Why inflation will hit 29-year high —Analysts

Ahead of the release of March 2024 inflation data, this afternoon, analysts have given reasons the Consumer Price Index (CPI) which measures inflation will rise to about 32.15 percent from February’s 31.7 percent, predicts a 29-year high.

Available data from the National Bureau of Statistics (NBS), shows that the last time Nigeria’s annual inflation rate soared to the current levels was  in 1996, equivalent to February 2024’s 31.7percent, up from 29.9percent in January.

According to the NBS calendar, the statistics office will release its inflation numbers today, April 15.

The Financial Derivatives Company’s (FDC) economic analysis, based on surveying major commodity markets in Lagos, showed a slight increase in headline inflation.

“This is expected to rise by 0.45percent, to 32.15percent from February’s 31.7percent, mainly attributed to seasonal disruptions, Ramadan, Easter spending, and supply shortages due to planting season, pushing inflation to a 29-year high,” the firm stated. Additionally, there was a notable appreciation of the naira by 21.6percent from N1,670/$ to N1,309/$ and a decline in the price of diesel from N1,500 to N1,380. These developments, according to analysts from Financial Derivatives Company (FDC), had a direct impact on the costs and margins of retailers.

FDC’s survey showed that tomatoes (22.9%) and pepper (17.6%) prices continued to rise due to planting season impact in Northern central Nigeria.

Food inflation is expected to increase by 0.14percent to 38.33percent from 37.92percent, also, core inflation will move in tandem with food inflation to rise by 0.14percent to 25.27percent from 25.13percent, mainly due to supply-side constraints and the absence of an inflation-targeting framework.

“In anticipation of the National Bureau of Statistics releasing its March inflation data on April 15th, 2024, we are forecasting an uptick in headline inflation, to 32.15percent from 31.7percent in February.

“In addition, seasonality increased supply shortages resulting from planting season. While there were significant declines in prices of various food commodities, especially imported commodities, stability was observed in others, Food inflation is expected to rise marginally to 38.33percent from 37.92percent, while core inflation is expected to increase to 25.27percent from 25.13percent.

“But, on a month-on-month basis, both food and core inflation are expected to decline, the FDC analysts stated in an e-mailed note.

Furthermore, the company observed that there were significant declines in the prices of tracked food commodities, including rice (7.4%), eggs (11%), onions (27.7%), noodles

(15.2%), and palm oil (9.1%). Conversely, prices remained stable for items like garri, cereals, melon seeds, sugar, beverages, and turkey.

It noted that most imported commodities tracked, showed a downward trend, reflecting reduced exchange rate pass-through effects.

The Central Bank of Nigeria (CBN) had in March hiked its policy rate by 200 basis points (bps) to 24.75 percent in a further tightening of liquidity.

“The effect of the cumulative increase of 600bps in the first quarter of 2024 has been a slowing of the rate increase in inflation. The trajectory of price increases both annual and monthly will seem to suggest that inflation is fast approaching a point of inflection, “ FDC stated.

On the impact of exchange rate on inflation, Dr Abiodun Adedipe, Chief Consultant, BAA Consult, noted that the key to dealing with the implied vulnerability is to strengthen and deepen manufacturing value-added, whereby the volume of imports (absolutely and relative to the GDP) will not matter as much as the volume that is value-converted to exports. The crux of addressing the vulnerability induced by a strong US dollar is strengthening and expanding manufacturing value-added capabilities for trade. This shifts the emphasis from mere trade balances to creating value within the country’s borders and insulates the economy from the fluctuations of global currencies.

Most analysts are of the view that both core and food inflation will taper in the second half of 2024. The Economic Intelligence Unit (EIU) is more bullish and is forecasting an inflation rate of 15.1percent in 2025.

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