Good news for Nigerian consumers, businesses and government as FSDH Research expects the June 2019 inflation rate to take a reverse turn from the trend it had recorded in the last two months.
We expect it to drop to 11.32% from 11.40% in May 2019. You will recall that popular adage, ‘Everything that goes up must come down’. Wait a moment.
We are aware that the prices of the consumer items that you bought in June 2019 were higher than the prices of the same items you bought in May.
You must be wondering, how has the inflation rate come down? What we are saying is that the prices of most of those items increased at a slower rate between May and June 2019 than the rate of increase between May and June 2018.
With that, the inflation rate (Headline inflation rate) would drop in June 2019. This scenario is known as the ‘base effect’.
The Central Bank of Nigeria (CBN) targets single-digit inflation rate for the Nigerian economy and reiterated the desire to achieve that target in the five-year plan it released a few weeks ago.
In other words, any inflation rate in double-digit is considered high in our view. Given recent developments in the country, particularly in the agricultural sector, and farmers’ inability to move their produce to the market efficiently, it may be difficult to achieve a single-digit inflation rate in 2019.
While the CBN is deploying strategies to influence the amount of money in circulation in a manner that will not be inflationary, we believe there are other key causes of high inflation in Nigeria which the CBN’s current policy may not be able to address.
“FSDH RESEARCH BELIEVES THE ISSUANCE OF COMMERCIAL PAPERS (CPS) ARE ATTRACTIVE TO CORPORATE BODIES”
The price monitor that FSDH Research conducted on food and non-food items shows prices moved in varying directions in June compared with May. While the prices of some consumer goods increased faster in June compared with 2019, the prices of a few consumer goods increased slower in June than in May. The National Bureau of Statistics is due to release the actual figure for the month of June on Sunday, 14 July 2019. Our preliminary investigations show that the local prices of imported goods increased marginally in June over May because of the exchange rate adjustment on import duties. However, the marginal increase was not enough to accelerate the inflation rate. The Food Price Index that the Food and Agriculture Organization (FAO) of the United Nations published for the month of June 2019, shows that the prices of dairy products and oils declined significantly. The prices of meat, cereals and sugar, however, increased on the international market. Most of the decreases recorded on the international market were mainly as a result of increased export availabilities and limited import demand.
FSDH Research believes that the inflation rate will trend downwards barring any increase in the electricity tariffs and pump price of Premium Motor Spirit. At the current inflation rate and given the desire of the CBN to maintain positive real yield on fixed income securities, FSDH Research believes the issuance of Commercial Papers (CPs) are attractive to corporate bodies. The high appetite that investors have for debt securities in the Nigerian financial market at the moment will ensure the success of quality debt issuance.
The Federal Government of Nigeria however, has to play its role to ensure infrastructure development, in particular, an appropriate transport network, reliable electricity supply and security of lives and property.
With these in place, the road to single-digit inflation rate will be smooth.