Nigeria’s inflation falls to single digit, lowest in five years


The Nigerian Statistics Bureau announced the new inflation figure on Monday.

Nigeria’s inflation has fallen to 9.0 per cent Year-on-Year (YoY) in January 2013, from 12.0 per cent YoY in December, the sharpest fall in about two years.

The National Bureau of Statistics (NBS) announced on Monday morning that compared with January 2012, prices rose by 9 per cent. This is compared with an increase of 12 per cent recorded in December. January’s 9 per cent is reportedly, the lowest since April 2008

Renaissance Capital, RenCap, an investment bank, said this development is in line with its expectation that ‘2013’s lowest inflation numbers would be printed in the first quarter of 2013 (1Q13).

“Governor Sanusi also guided at our Lagos conference that inflation would slip below 10 per cent in January on account of the base effect set by the 50 per cent increase in petrol prices in January 2012. Notably, this is the lowest inflation has been in over four years” the firm said in a report issued today, analysing the nation’s inflation figures.

“Although core inflation, which excludes farm produce, softened to 11.4 per cent YoY in January, from 13.6 per cent YoY in December, YoY inflation of the main non-food categories increased in January, by our estimates” the firm said.

It added that clothing and footwear, housing and utilities, and furnishings and household equipment all printed higher YoY inflation in January, than they did in December.

“Food inflation slowed slightly to 10.1 per cent YoY in January, from 10.2 per cent YoY in the previous month, however, imported inflation accelerated to 14.1 per cent YoY, from 9.8 per cent YoY, by our estimates” the firm added.

“We expect inflation to pick up from 2Q13 and expect the year’s average inflation to fall in the 10-11 per cent region” RenCap said, adding that the forecast is higher than Nigeria’s statistics office’s average inflation projection for 2013 of 9.8 per cent.

The investment bank said the Central Bank Governor last week stressed stability and the importance of conserving the stability the Central Bank has attained in recent years, which implies that the Central Bank would lean towards sustaining the tight monetary policy stance.

“That said, we believe that if the Monetary Policy Committee (MPC) were to cut the policy rate in 2013, they would do so in March. We maintain our projection of a 100 basis points (bpts) cut to 11 per cent in 2013” the firm said.

According to Bismarck Rewane, a finance analyst and Managing Director, Financial Derivatives Company (FDC), a diversified financial firm, the consensus was that headline inflation “will fall below the magic 10 per cent figure”.

The FDC Lagos urban index re- leased on Friday showed a year on year decline of 1.08% to 11.31% down from 12.39% in December 2012. The moderation in the urban inflation index was mainly due to the Base year effect.

According to Mr. Rewane, it was in January 2012 that fuel subsidy was slashed by 49 per cent, pushing the price of petrol up to N97 per litre.

“There was a rash of price increases in that month, many of those prices were to fall later due to consumer resistance and a drop in the disposable and discretionary income of workers”.

Apart from the Base year effect, prices moderated also because of the increased supply of goods to the urban centres, after the floods that affected twelve states hampered distribution, Mr. Rewane said. He added that farmers had complained of goods being stranded at their points of origin during the massive floods. With the floods over in October most of the stranded goods reached the markets in December and that helped to reduce prices.

The food basket in Lagos in particular declined by 3.11 per cent to 10.79 per cent in January. This will be the third consecutive monthly decline in the food basket, according to a report from FDC.

The non-food basket also declined by 3.16 per cent to 11.31 per cent, dragged down by air fares, kerosene and toiletries. On the other hand there were price increases in building materials, women’s apparel and cooking gas. The basket as a whole declined because of the lower weights of the increasing commodities relative to the decliners.

According to Mr. Rewane, there is a near standard correlation between the urban and national inflation index and the time lag pattern and it was based on this correlation that FDC had earlier forecasted the official January CPI will show a decline to 9.22 per cent (±0.78%).

This movement in the nation’s consumer price index is considered to be one of the most dramatic in two years.

According to him, reaction to the News will be mostly hysterical by those canvassing for lower interest rates.

“It will confirm their view that the MPC had been too conservative and tentative in its stance of maintaining the Monetary Policy Rate (MPR) at 12 per cent Per annum. On the other hand the Central Bank will argue that the current low rate of inflation is a result of its steadfastness” he said.

He however said in the meantime, the markets have seen rates falling, and interest rates have declined especially bond yields that have been shaved by approximately 300 basis points.

“The last money supply growth data that showed a 2.53 per cent increase for 2012 also confirms that the inflation gap (money supply growth minus GDP growth) is much lower than its peers countries which have reduced rates recently. It will therefore most likely force the MPC to slash rates by 50 – 100 basis points next month” he said.

Edward Kingstone Associated, an economic research and analysis firm, said based on the absence of base effects in February 2013 coupled with the implications of the sharp monthly rise in Core Inflation reported, it “expects that Headline inflation in February will be 9.6 per cent”.

“The inflation forecast chart depicts the probability of possible outcomes from February to July 2013. We expect February 2013 inflation to print at 9.6%. If our assumptions prevail, we are 90 per cent certain that price increase in any particular month is expected to stay within the light- grey bell,” the firm said.

According to the firm, in a report analysing the development in the nation’s inflation rate, whilst the slowing of inflation comes as no surprise, the magnitude of change is however very large – especially when compared with previous periods when fuel prices were raised.

“With government having stayed further action on eliminating the subsidy on pump price of petroleum products, 2013 started on a different note than the previous year” the firm said.

The near term general outlook for inflation suggests inflation will continue to moderate, but there will be a 0.6 per cent month on month (m-o-m) increase in February before the downtrend resumes in March.

“The sharp drop in price in January is a welcome development, and sets the tone for the year, barring any unforeseen shocks to the system. We are, however, mindful of the fact that the sharp drop in inflation is mainly attributable to the base-effect, which will be largely muted for subsequent months”.

“Also, the impact of damages due to flooding in the previous year, of which agricultural sector was the most affected of all the productive sectors, is still largely to be felt” the firm said.

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