Jumpy Inflation Rate No Respite until Second Half of 2021 –CHD
Dr. Yemi Kalejaiye, Statistician General, NBS

Jumpy Inflation Rate: No Respite until Second Half of 2021 –CHD

There will be no respite to rising inflation rate until second half of 2021, Chapel Hill Denham (CHD), a leading investment firm has said in a macroeconomic note.

The inflation rate which began slowly has maintained uptrend after the monetary policy’s alibi that supply shock stokes average increase in general price level amidst the outbreak of covid-19.

Meanwhile, analysts at Chapel Hill Denham said they believe risks are still biased to the upside over the near term, due to anticipated increase in the prices of petroleum products.

This comes in addition subsisting food supply challenges, and low base effect.

As a result, the investment firm express view that the jumpy inflation rate will touch 17% by second quarter before moderating in the second half.

It attributes the expected moderation to a better harvest season, relatively stable FX rate and high base effect.

MarketForces Africa reported that after 17 consecutive months uptrend, Nigerian headline inflation rate hits 16.47%, a 45-month high amid strong rise in food inflation.

In a new consumer price index report, National Bureau of Statistics revealed headline inflation rate maintained upward trajectory for the 17th consecutive months to 16.47%.

This translate to 71 basis point increase when compare with 15.75% recorded for December, 2020.

“While the sustained pressure on consumer prices was in line with expectation, the actual inflation print represents a negative surprise compared to our estimate of 16.0% and Bloomberg consensus forecast of 16.1%”, Chapel Hill Denham said.

On a monthly basis, the headline index growth slowed to 1.49% month-on-month from 1.61% in December 2020, but significantly above seasonally-adjusted long run average.

This suggests that underlying inflation remains stubbornly high. Pressures were broad-based within the month, but food inflation remains the major pressure point.

On year on year basis, food inflation surged by 100bps to a record high of 20.57%, while core inflation increased by 48bps to a 3-year high of 11.85%.

“Notably, food inflation print in January represents the highest level of food inflation since the 2009 CPI series started, and also the highest level since 2008, including the previous CPI series.

“Monthly food inflation offers some comfort as it bucked a largely upward trend, dropping marginally to 1.49% mom from 1.61% mom in December 2020”, analysts said.

Chapel Hill Denham thinks while this could be as a result of the government’s decision to re-open four border crossing points on December 16 the firm believes it is too early to declare victory, at least until early harvest commences in June.

The four borders opened include the Seme crossing with Benin; the Magatari and Illela crossings with Niger; the Mfum crossing with Cameroon.

In January, the rise in the food index was caused by increases in the prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, vegetable, fish and oils and fats.

“In our view, the record high food inflation is due to a multitude of factors, including impact of COVID-19 on global food supply chain and below-average local food harvest in 2020.

“This also include lingering impact of the border closure, which raised logistic costs for food importers.

“In addition is the 24% depreciation of the exchange rate -in the parallel market- over the past one year; and security challenges in major agriculture production areas”, Chapel Hill Denham explained.

Within the core basket, on a monthly basis, core inflation quickened to 1.26% month-on-month from 1.10% in December 2020.

The highest increases were recorded in the prices of passenger transport by air, medical services, hospital services, and passenger transport by road.

Others are pharmaceutical products, paramedical services, repair of furniture, vehicle spare parts, motor cars, miscellaneous services relating to the dwelling, and maintenance and repair.

Outlook: No respite until H2-2021.

We believe risks are still biased to the upside over the near term, due to anticipated increase in the prices of petroleum products, subsisting food supply challenges, and low base effect.

As a result, we expect inflation rate to touch 17% by Q2-2021, before moderating in H2-2021, due to a better harvest season, relatively stable FX rate and high base effect.

Unchecked for 17-months, inflation rate has plunged the local currency down with Naira losing value in the global economy as purchasing power drops.

Rising inflation ruffles analysts, predict end to lower interest rate era

Jumpy Inflation Rate: No Respite until Second Half of 2021 –CHD