BY BAMIDELE FAMOOFO
Despite the moderation in price increases evidenced in the decline in month-on-month inflation numbers for April, financial experts anticipate a further tightening of the monetary policy rate.
The financial market analysts anticipate that the MPC during its meeting commencing from today will raise the MPR by 100 basis points to 25.75 percent while holding other parameters constant.
A report released by Cordros Research at the weekend, said, “This is because a one-month data release of a slowdown in prices is not sufficient for the MPC to conclude that inflation is under control, inflation risks are skewed to the upside given that currency pressures have resurfaced, and the need to manage inflation expectations given the inflationary impact of the anticipated review of the minimum wage.”
“Nevertheless, we anticipate a less hawkish stance primarily due to (1) the slowdown in the pace of inflation and (2) DMO’s reluctance to take interest rates significantly higher in the fixed-income market, given its impact on the Federal Government’s debt burden,” Cordros added.
In a different report, Cowry Asset noted: “The CBN Monetary Policy Committee may have little thicket for rate ruse at the forthcoming MPC meeting as several economic indicators point towards further tightening or hold stance to further allow the impact of previous rate hikes to permeate the economy following the latest consumer price inflation (CPI) reading at a fresh 28-year high for April 2024.”
At its last meeting in March, the committee raised the policy rate by +200bps to 24.75 percent from 22.75 percent in February, and adjusted the asymmetric corridor around the MPR to +100/-300bps from +100/-700bps previously, while all other parameters were left constant.
However, for merchant banks, the CRR was raised from 10 percent to 14 percent in a bid to improve bank lending and discourage the reserves for idle cash within the banking system.
Meanwhile, the latest report published by the NBS showed that Nigeria’s consumer price inflation continued its monthly acceleration for the sixteenth consecutive month, reaching a 28-year high of 33.69 percent in April 2024, up from 33.20 percent the previous month.
This increase is partly attributed to the renewed weakness in the naira, the removal of fuel subsidies, and the hike in electricity tariffs. The sluggish movement was anticipated as the incremental rise in April’s headline inflation rate showed a 0.49 percentage point increase from March 2024; beating our expected 34.65 percent and expectations of the market at above 34 percent but marking an 11.47 percentage point increase compared to April 2023’s rate of 22.22 percent.
“Financial market analysts anticipate that the MPC during its meeting commencing from today will raise the MPR by 100 basis points to 25.75 percent while holding other parameters constant.”
This increase in the headline index was driven by various items within the inflation basket, including food, housing, transportation, and miscellaneous categories. Food inflation remains a significant driver of the headline index, hitting 40.53% year-on-year in April.
This surge is due to rising prices of essential food items such as millet flour, garri, bread, wheat flour, semovita, yam tuber, water yam, cocoyam, coconut oil, palm kernel oil, vegetable oil, dried fish, beef, frozen chicken, and various fruits and beverages.
Despite this annual increase, food inflation moderated by 1.11 percentage points to 2.5 percent in April, down from 3.62 percent in March, due to the decreases seen in the rate of price increases for items like yam, water yam, Irish potatoes, beer, local beer, Milo, Bournvita, Nescafe, groundnut oil, palm oil, eggs, milk, soft drinks, spirits, and various fruits.
Elsewhere, the core inflation, which excludes the prices of volatile agricultural produce and energy, stood at 26.84% year-on-year in April 2024, up by 6.87 percentage points from 19.96% in April 2023. The highest increases in core inflation were observed in prices for housing rentals, motorcycle journeys, bus journeys within cities, medical consultation fees, X-ray services, and accommodation services.
Meanwhile, on a month-on-month basis, the core Inflation rate was 2.20 percent in April 2024, printing at 2.54 percent in March 2024, and indicating a decrease of 0.34 percent. Across the states, headline inflation was highest in Kogi (40.84%), Bauchi (39.91%), and Oyo (38.37%), while Borno (26.09%), Benue (27.53%), and Taraba (28.69%) recorded the slowest year-on-year rises.
On a month-on-month basis, Lagos (4.52%), Ondo (3.35%), and Edo (3.27%) experienced the highest increases, whereas Kano (0.30%), Ebonyi (0.97%), and Adamawa (1.25%) had the slowest rises. Also, for the food index, it was highest in Kogi (48.62%), Kwara (46.73%), and Ondo (45.87%), while Adamawa (33.61%), Bauchi (33.85%) and Nasarawa (34.03%), recorded the slowest rise on a year-on-year basis. On a month-on month basis, however, food inflation was highest in Lagos (4.74%), Edo (4.06%), and Yobe (3.99%), while Kano (0.47%), Adamawa (0.98%) and Zamfara (1.50%) recorded the slowest rise.