Nairametrics| The National Bureau of Statistics released its 2017 March Consumer Price Index showing inflation rate rose 17.26%. This is the second month in succession that the annual inflation rate will trend lower. For the government, this is proof that the economy might be turning the corner. In February inflation rate was 17.78% a huge drop from the 18.87 which at the time was the highest inflation rate since September 2005.
While the continued decrease in headline inflation rate may be good sign for the economy, the month on month inflation rate is throwing up signs of its own. The signs are unfortunately not as good as the headline inflation rate. It is ugly.
Year on Year and Month on Month Inflation Rate from 2013 – March 2017
Month on Month inflation rate
- A review of the chart above shows month on month rise in inflation has been above 1% since January 2017. See more charts below;
- It is currently at 1.7%, which it last touched in June 2016
- Average 12 month inflation rate is also 17.3% and has been rising for quite some time. So, while year on year inflation rate is dropping, the average yearly inflation rate is still rising.
- Food inflation, a major driver of headline inflation rate also recorded a jump in month on month inflation. Month on Month food inflation rate has now crossed 2% and could remain that way for some months to come.
- Core inflation, which is All Items inflation without food, is also rising month on month. It crossed 1% in February, the highest since July 2016. It was 1.3% in March 2017.
Why is Month on Month inflation rising?
- Initial view, point to the devaluation of the naira on the black market experienced towards the end of 2016.
- Another reason point to the rising cost of food in Nigeria, triggered by higher import cost and ban of locally produced food in Nigeria.
- The government has banned exports of locally produced food to contain food scarcity leading to smuggling to neighboring countries. The depreciation of the naira has made exports more lucrative.
What’s the implication of this?
- Nigeria’s headline inflation rate is expected to trend further downwards following the impact of base effects.
- However, with month on month inflation rising at a rate of 2%, we may experience a slower drop in the rate of inflation.
- For example, while headline inflation dropped by 0.9% between January and February 2017, it dropped by 0.52% in March 2017.
- A slower drop means that headline inflation could take longer than required to drop to single digits or the government’s target 15.74% inflation rate for 2017.
- This is also against the backdrop that the exchange rate might be devalued across all windows this quarter, nationwide fuel price data shows it is increasing across states and most traders are yet to fully reflect input cost in the prices of goods and services
Food Inflation – Month on Month and Year on Year
Core inflation – Month on Month and Year on Year