Rising Inflation Numbers at 22.22% Leaves CBN Slim Thicket for Rates Tweak…


Ahead of the next Monetary Policy Committee meeting for May 2023, several indices including the battle against surging inflation have remain on the front burner for the committee as there appears a slim thicket for quantitative easing. measure at the altar of growth. This is part of the expectations that the lingering FX pressures and various market dynamics will continue playing pivotal role in the policy direction of the committee.

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At the May 2022 MPC meeting, the CBN, in its quest to rein inflationary pressures, adopted the hawkish stand by 150bps rates hike.

This became the ritual at the last 6 meetings where rates were on the rise by 650bps to 18.00% and keeping other parameters unchanged.

Notwithstanding the committee’s resolve on price stability and other inflation-driving elements, the recent inflation printing and the forecast for the continued surge in inflation numbers in 2023 provides further room for rates tweak in line with major Central Banks to abet the avoidance of capital flights out of Nigeria.

The recent report from the National Bureau of Statistics (NBS) showed there was an acceleration of the headline inflation for the fourth straight month in 2023 to 22.22% in April 2023 from 22.04% in the previous month. This indicates a 0.18 percent points increase m/m and the highest reading since September 2005 (24.3%).

We attribute this continued uptrend in the headline consumer price index to devalued Naira
which has made imported goods more expensive; increasing cost of gas, as well as the cost of
electricity generation and distribution (3.72%). Also, the contributions of items on the
divisional level further precipitated the acceleration.

Thus, food and non-alcoholic beverages (11.51%), clothing and footwear (1.70%), transportation cost (1.45%) and household furnishing and equipment (1.12%).

The food index has continued to be a driver of the headline index. The index rose to 24.61% y/y in April 2023 as a result of increases in prices of Oil and fat, Bread and cereals, Fish, Potatoes, Yam and other tubers, Fruits, Meat, Vegetable, and Spirits. The April figure increased from 24.45% in March 2023 due to rises recorded in electricity
tariffs, energy-diesel and petrol prices, and miscellaneous goods & services in the month.

These, we linked to the ongoing conflict in Ukraine have disrupted the global supply of food, which has led to higher prices, the devaluation of the Naira has made imported food more expensive, and the government’s decision to ban the importation of some food items has also contributed to the rising cost of food.

The core inflation, which excludes the prices of volatile agricultural produce stood at 20.14% in April 2023 y/y. the highest increases were recorded in prices of Gas, Passenger transport by Air, Liquid fuel, Vehicle spare parts, Fuels, and lubricants for personal transport equipment, Medical services, Passenger transport by road, etc.

On the state profiles, all items inflation rate was recorded highest in Bayelsa (26.14%), Kogi (25.57%), Rivers (24.95%), while Borno (19.06%), Taraba (19.64%) and Sokoto (19.90%) recorded the slowest rise in headline inflation on a y/y basis in April 2023.

Meanwhile, the food inflation basket saw Kogi (29.50%), Kwara (29.48%), and Bayelsa (29.38%) emerging as states with the highest while Sokoto (19.55%), Taraba (20.20%) and Jigawa (20.68%) recorded the slowest rise in April.

Cowry Research sees rising inflation on an upward trajectory in 2023, giving further room to policy tightening measures by the CBN at the May 2023 MPC meeting in its the continued battle against stubborn inflation.

We note that the rising inflation rate is eroding the purchasing power of Nigerians and making it more difficult for them to afford basic necessities. As such, the Central Bank of Nigeria is keeping the Monetary Policy Rate (MPR) high and selling foreign exchange to banks at a higher rate.

For May 2023, we project a slower acceleration in hea dline inflation to 22.5%. Also, we project a possible 50bps increase in the interest rate in its May-2023 meeting.

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