FBNQuest Research: Inflation decline in April unexpected; to hit 18.3% in May

FBNQuest Research: Inflation decline in April unexpected; to hit 18.3% in May

FBNQuest Research: Inflation decline in April unexpected, to hit 18.3% in May



Financial analysts at FBNQuest Research have described the reported marginal decline in the consumer price index (CPI) which measures inflation for the month of April as unexpected.

The headline inflation retreated for the first time in nineteen months to 18.12 per cent in April from 18.17 per cent recorded in March, data released on Monday by the National Bureau of Statistics (NBS).

The latest figure defied many analysts’ projections including those at FBNQuest who forecast a rise from March inflation rate to 18.80 per cent in April in a note shared with newswires.

The wrong projection was anchored on expected rise in food price inflation, which on the contrary decreased from 22.95 per cent year-on-year in March to 22.72 per cent in April.

Although, in April, core (non-food) prices picked up from 12.67 per cent y/y to 12.74 per cent, according to the NBS report.

On a month-on-month basis, headline inflation decreased from 1.56 per cent in March to 0.97 per cent in April.

Food inflation remains the key driver. The highest increases were recorded in fish, meat, oils and fats, tubers, bread, cereals, potatoes, eggs and vegetables.

The rise in food prices has also been exacerbated by import restrictions on certain staples, FBNQuest analysts explained.

“Despite the exchange-rate adjustments and the challenges in securing access to fx, we find relative stability in imported food prices.

On a y/y basis, imported food price inflation rose slightly to 16.91 per cent y/y from 16.86 per cent y/y recorded in the previous month.

“NAFEX turnover amounted to $1.18 billion in April according to FMDQ; the inflow was $416.5 million with the CBN accounting for 21 per cent while the non-bank corporates accounted for 41 per cent.

“The impact of the COVID-19 virus remains visible. The highest increases in core inflation were recorded in pharmaceutical products, hospital services, garments, personal transport equipment, vehicle spare parts, among others,’ the cited the NBS report.

The NBS also tracks headline inflation by state, with the highest, 24.33 per cent y/y, in Kogi and the lowest, 15.58 per centin Katsina.

It is worth noting that household baskets vary across states due to different consumption patterns.

Generally, the analysts noted that the current inflationary pressure induces macroeconomic instability and also negatively affects the welfare of households and fixed income earners.

For instance, the Central Bank of Nigeria’s (CBN) in-house estimates show that headline inflation will remain above 17.9 per cent in 2021.

“Persistent high inflation remains a key concern for monetary policy. At the last monetary policy committee (MPC) in March, the committee retained all parameters and reiterated its stance that inflationary pressure is mainly due to legacy structural factors across the economy and not largely associated with monetary factors.

“The MPC is scheduled to hold its next meeting on the 24th and 25th of May. Our call is for a headline rate of 18.3 per cent year-on-year in May,” the concluded.