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Business News

Inflation rate drops for the 18th consecutive time

Inflation increased by 11.14% (year-on-year) in July 2018 which is 0.9% less than the recorded rate in June, 2018 (11.23%).

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Key Highlights 

  • Inflation rate stood at 11.14% in July.
  • Inflation rate reduces by 0.09% from June.
  • Inflation rate increased by 1.13% on month-on-month basis.
  • Food inflation stood at 12.85% in July.
  • Core Inflation stood at 10.2% in July.

The National Bureau of Statistics (NBS), on Monday released the Consumer Price Index (CPI) for July 2018. The CPI measures the average change over time in prices of goods and services consumed by people for day-to-day living. 

The report shows inflation increased by 11.14% (year-on-year) in July 2018 which is 0.09% less than the recorded rate in June, 2018 (11.23%). This reduction is the eighteenth consecutive month inflation rate has been dropping since January, 2017. 

Core Inflation 

According to the NBS report, core inflation stood at 10.2% and decreased by 0.2% in the month of July from the 10.4% recorded in June. On a month on basis, it rose by 0.81% in the period under review. It was down by 0.22% when compared with 1.03% recorded in June. 

However, the percentage change in the average composite CPI for the twelve-month period ending July, 2018 over the average of the CPI for the previous twelve-month period was 11.48%, which is a reduction of 0.17% from 11.65% recorded in June. 

Food Inflation 

The Composite Food Index rose by 12.85%, during the period under review, compared to 12.98% in June 2018. The figure shows food inflation has been declining year on year for the tenth consecutive month. The reduction was caused by the increase in price of potatoes, yam and other tubers, fish, bread and cereals, Oil and fats, vegetables and fruits. 

Also, on a month-on-month basis, the Food sub-index increased by 1.40% in the month of July 2018, it went down by 0.17% from 1.57% that was recorded in the previous month of June. 

The CPI report also shows that the average annual rate of change of the Food sub-index for the twelve-month period ending July 2018 over the previous twelve-month average was 17.10%, which is a reduction of 0.65% from the average annual rate of change recorded in the month of June (17.75%). 

Urban Inflation

Meanwhile, the report equally shows that there is a 11.66% reduction in the urban inflation rate (year-on-year) in July 2018 from 11.68% recorded in the previous month of June 2018. The rural inflation rate remained unchanged, thus, standing at the same 10.83% recorded in the previous month of June 2018.

In the same vein, the Urban Index rose by 1.23% in July 2018 from 1.24% recorded in June, which shows a reduction of 0.01 on a month-on-month basis. For Rural Index, it also rose by 1.18%, from the recorded figure of 1.23% in the previous month of June.

The corresponding 12-month year-on-year rural inflation rate in the period under review is 13.64% compared to 14.08% in June 2018 while the corresponding urban index was 14.33% in July which is less than 14.71% reported in June, 2018.

All Items Inflation (states)

Meanwhile, during the month under review, Kebbi State recorded the highest all-items-inflation with a figure of 13.43%. Rivers State (13.09%) and Kaduna State (13.01%) followed in that order, while Plateau State (8.82%) recorded the slowest rise in price during the period. Ogun followed with 8.86% while Kwara recorded 9.63% on a year-on-year all item basis in July, 2018. 

Implication 

For investors, falling inflation means lower yields on treasury bills and other government securities. For select borrowers, the drop in inflation, in theory, should lead to lower rates. 

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Coronavirus

FG denies report on reintroduction of Covid-19 restrictions, clarifies position

The FG has denied media reports that it has reintroduced new Covid-19 restrictions as part of measures to curb the spread of the new India variant into the country.

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FG publishes list of suspended passports for refusing post-arrival Covid-19 test

The Federal Government has denied media reports that it has reintroduced new Covid-19 restrictions as part of measures to curb the spread of the new India variant into the country.

The government explained that it was only maintaining the curfew under phase 4 of the phased restriction of movement adding that it never relaxed the curfew imposed earlier under phase 3 of the eased lockdown.

This clarification was made by the Secretary to the Government of the Federation (SGF) and chairman of the Presidential Steering Committee, (PSC) on Covid-19, Mr Boss Mustapha, on Monday, saying that it was erroneously reported.

Mustapha said the announcement by the National Incident Manager, Dr Mukhtar Mohammed, during the PSC press briefing was taken out of context because the federal government did not relax the curfew imposed earlier under Phase 3 of the eased lockdown.

What the SGF is saying

Mustapha said, “Under the Fourth Phase of restriction of movement, night clubs, gyms and others will remain closed till further notice; while all citizens will also ensure that mass gatherings outside work settings do not exceed a maximum of 50 people in an enclosed space.

These restrictions have been in existence under the Third Phase but are being maintained under Phase Four of the phased restriction of movement.’

He further said because people had been violating the safety protocols, they had forgotten that the protocols were never relaxed in the first place.

The SGF said, “Therefore, the PSC hereby reiterates that there is no newly introduced lockdown. There is no need for the panic that followed the announcement of the Fourth Phase of the phased restriction of movement.

Hotflex

We will continue to appeal to members of the public to comply with these restrictions because they are necessary safety measures against contracting the dreaded coronavirus, which is still ravaging human populations across the world.’

Also, the Minister of Information and Culture, Alhaji Lai Mohammed, at a meeting with Online Publishers on Tuesday, in Lagos, denied reports on the introduction or even reintroduction of new restrictions on Covid-19.

Alhaji Lai Mohammed said there were no new restrictions, adding that the PSC on Covid-19 only reiterated existing regulations to control the spread of the disease. He said the only thing that was newly introduced was that anyone, including Nigerians travelling from Brazil, Turkey or India, must go through compulsory quarantine.

In case you missed it

It can be recalled that there were media reports that the Federal Government had reintroduced Covid-19 restrictions across all 36 states and the Federal Capital Territory (FCT) following the disturbing resurgence of the coronavirus pandemic with the new India variant.

President Muhammadu Buhari had approved the transition of the Presidential Task Force (PTF) on Covid-19 to PSC on Covid-19, with effect from April 1, 2021, with a modified mandate to reflect the non-emergent status of Covid-19 as a potentially long-term pandemic.

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Financial Services

Inflationary concerns may lead to higher rate; Why 3 CBN MPC members want rates hiked

Despite the slight push back, the MPC decided to hold the rates, owing to the supply factor and the weak economic recovery of Nigeria.

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CBN forex restrictions on food itemsCBN approves new cheque standard for banks

Three members of the CBN’s Monetary Policy Committee proposed a rate hike citing several factors including Nigeria’s galloping inflation rate. Their decisions contradict those held by other members of the committee who voted for a continuation of the current monetary policy rate of 11.5%.

This was contained in the personal statement of members of the  Monetary Policy Committee (MPC) in the meeting held on the 22nd and 23rd of March 2021. The decision to hold the rate steady was not unanimous as three out of the nine members voted to increase rates. These disconnects from the majority took their stand as a result of inflationary concern facing the Nigerian economy.

According to the Central Bank of Nigeria Communiqué No. 135 Of The Monetary Policy Committee Meeting, the members who were in support of hiking rates are namely; OBADAN, MIKE IDIAHI; SHONUBI, FOLASHODUN A.; and ADENIKINJU, ADEOLA FESTUS. The prime reason was the risk of high inflation on the economy.

Despite the slight push back, the MPC decided to hold the rates, owing to the supply factor and the weak economic recovery of Nigeria. The CBN governor Godwin I. Emefiele and five others were in support of maintaining rate despite unstable inflation postulating that supply factor is fundamental to healthy recovery especially as a result of the pandemic.

Emefiele said: “Supply constraints remain the key driver of both the inflationary pressure and the weak growth that we observe today. The weak GDP recovery provides an argument for further policy ease to support growth, but rising inflationary expectations justify a tightening. My inclination today is for a more balanced and cautious approach to monetary impulses.”

Even though Emefiele admitted that inflation rate could rise in the near term, he feared that an adjustment of the MPR could worsen Nigeria’s “conditions” especially with the tepid recovery we are still experiencing.

“I reiterate the imperatives of targeted lending to productive sectors to sustain growth without undermining our core objective of price stability. Based on the near-term inflation expectations and growth outlook, my position is to maintain the current stance of monetary policy and intensify our interventions. An adjustment today could in my view, destabilize the fragile recovery and worsen domestic conditions.”

However, some members who did not share the view and speculation about higher inflation may affirm this stand OBADAN, MIKE IDIAHI postulated that the CBN should put more pressure on deposit money banks to comply with the LDR scheme, according to him.

OBADAN stated that, “We are faced with the dilemma of low and fragile growth that needs to be reversed, accelerating inflation also needs to be tamed because it is Classified as Confidential and has a negative impact on people’s welfare and macroeconomic stability which is required for enhanced investment and production. Orthodox policy instruments available to the Bank are not capable of achieving the desired goals of strong growth and inflation control simultaneously without sacrificing one for the other. Stability needs to be brought to bear on the policy-induced drivers of the current inflation acceleration, while the MPR can be raised marginally with three objectives in mind: to signal the sensitivity of the Bank to address any possible monetary influence on inflation.”

A skeptical and more hawkish Obadan also suggested that the recent inflation rate was also due to monetary policy reasons such as increased lending due to CBN’s LDR Policy, depreciation of the naira and a lower interest rate environment which drives people into assets that provide a hedge against the naira.  He also suggested that more efforts should be geared towards attracting foreign portfolio inflows.

“The factor of monetary influence on inflation cannot be ruled out completely. It interacts with other factors to drive inflation, perhaps, in a limited role. Against the backdrop of the Loan-to Deposit Ratio (LDR) policy, I do not expect the MPR adjustment to adversely affect the volume of lending significantly. To this end, we should put more pressure on the deposit money banks to comply with the LDR policy. Marginal upward adjustment of the MPR can also signal the desire of the Bank to tackle the phenomenon of negative real interest rate. Finally, in the short term, it could be a signal to foreign private investors while we implement measures to ensure stable sources of external reserves accretion in the medium term. Yes, foreign portfolio investment flows are indeed hot monies that tend to be very volatile. However, under conditions of improving growth, such flows could play a stabilising role in the economy. So, my vote is: raise MPR by 50 basis points and leave the other parameters as they are.”

SHONUBI, FOLASHODUN A., on the other hand, emphasized inaction was not an option considering how weak and fragile the economy currently is.

“Clearly, not doing anything will portray the Bank as abandoning its mandate of price stability. In as much as growth remains weak and fragile, we cannot afford to pull the brake to avert a more damaging reversal of the trend in output growth. Notwithstanding that the present inflationary pressure is largely attributed to non-monetary factors, its persistence, and reversal of the moderation in month-on-month growth stresses the need for the Bank to take immediate action. Whereas it may appear unfeasible to deploy the conventional monetary policy to pursue growth and tame inflation simultaneously, the Bank cannot abandon either of the objectives at this time.”

He also called for the continued intervention in key sectors of the economy postulating that this will boost economic growth.

“I believe the Bank’s interventions through the aggressive provision of credit should continue as a complement to the ongoing effort by the fiscal authority to boost economic activities. As the Government acts more decisively to discourage bad behaviour and restore orderliness, we must collectively work to overcome the insecurity challenges. At the same time, we must begin to tighten to deal with the subtle monetary component of inflationary pressure and curb spiraling inflation, without suffocating economic growth.”

Jaiz bank

Adenikinju, the last of the trio emphasized on the need for the CBN to focus on addressing higher inflationary environment. He also explained that addressing inflation will signal to economic agents that the central bank is keen on stabilizing prices thus curbing the demand for forex.

He stated that the persistently high inflation rate is cause for concern and that the CBN should begin refocusing its efforts to counter it, signaling to the wider economy that the CBN’s top priority would help to minimize foreign exchange market excesses, reduce liquidity-induced inflationary pressures on the economy, and protect fixed-income earners.

“The rising global commodity prices, plus the depreciating exchange rates and relatively high costs of shipping and clearing of goods at the Nigerian ports have all contributed to high imported inflation and reduced the extent to which imports could have mitigated the impacts of high domestic food prices in the short term. However, the weak economic growth, rising unemployment and poverty also mean that we cannot aggressively pursue strict price stability at a time we are slowly crawling out of recession. I see the CBN intervention credit as complementary and not a substitution to credit from the deposit money banks. Also given the focus of capital expenditure of the government this year, it then means that we can focus on growth and tackle inflation at the same time. However, I believe the persistently high inflation rate is concerning enough for CBN to start shifting its focus to address it. Signaling to economic agents that price stability remains the focus of the CBN will also curb some of the excesses in the foreign exchange market and reduce the liquidity induced inflationary pressures on the economy and protect fixed income earners.”

Bottom line

Whilst the trio may not have gotten their wish, we believe the CBN might raise rates to cool off the galloping inflation rate. The CBN has gradually raised rates on its short-dated securities, a clear indication that it is worried about widening the negative real interest rate emanating from rising inflation.

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