Nairametrics| The good news last week was that March inflation figures released by the National Bureau of Statistics shows a second deceleration in as many months, dropping from 17.78% in February to 17.26% in March. With the decrease in inflation, the expectation would have been that food prices, which make up a major part of the consumer price index, would also reduce.
However, this was not the case as food prices rose by 2.21% — 22 points higher than in February – with notable increases in the prices of bread, cereals, milk, meat, fish, potatoes, cheese, and eggs observed, Daily Trust says. What could be responsible?
- Base year effect: According to analysts at the Financial Derivatives Company (FDC), the year-on-year figures show a decline in both core and food inflation, in spite of an increase in monthly inflation with the Base year effects remaining a major contributing factor to the slowing inflationary pace.
- Skepticism about CBN’s actions: In addition, FDC analysts noted that the effects of the CBN’s forex intervention have not yet been positively felt as manufacturers ‘await more clarity and sustainability in the market.’ Thus, many are still skeptical about how long the CBN can continue supporting the Naira. Sustained intervention may however instill belief in manufacturers and result in increased production.
- Stocks on hand need to be disposed: Most manufacturers still have stocks that they purchased at higher prices. They still want to sell these off at a profit before restocking at lower prices, which will then reflect lower rates.
- Harvest time is not yet here: This reason was given by the Chairman of the Nigerian Economic Summit Group (NESG), Mr. Kyari Bukar. He is of the opinion that most harvests will happen during the months of April and May. As a result, the effects of the FG’s efforts may not be evident until then. “We are seeing improvements and some government efforts are bearing fruits. I don’t think the impact of agriculture has as it will, until the second quarter, because most of the harvest happen around the April/May time frame.”
These reasons suggest that the increase in food inflation index, although might be present for a while, will eventually decline and represent the true state of the economy. Unless something else unforeseen happens.