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Macro-Economic News

Nigeria & UK: Two opposing inflation problems

The problem with inflation getting to high is that it erodes income, reduces value of naira.

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Nigeria’s inflation has been on a steady rise. Reports released by the National Bureau of Statistics today, revealed that consumer prices increased by 12.4% year-on-year, even higher than the rate reported in the month of April, 12.3%.

This growth represents the highest in over two years, and while this is not entirely surprising as a result of the Covid-19 pandemic, another country is experiencing a completely different outcome.

Earlier today as well, in the UK, the Office for National Statistics (ONS) announced a four-year low in inflation as a result of the crash in fuel prices. Inflation rate fell as low as 0.5% also in May, even lower than the 0.8% it recorded in April, the first full month of the pandemic lockdown.

This was also a record low since June 2016, moving further away from the British government 2% target.

READ MORE: Copper hits six months high, Industrial demand spur bullish run

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Same Covid-19 pandemic, but different Inflation Problems

Nigeria’s prices stay rising as clashes between herders and farmers further worsen insecurity whilst inter-state travel stay disrupted owing to the coronavirus pandemic.

More so, as a result of the increase in the cost of food brought about by food inflation which quickened to 15.04%, the highest rate since March 2018, an import-dependent Nigeria is exposed to inflationary uptrend.

The problem with inflation getting to high is that it erodes income, reduces the value of the naira, and reduces returns on debt instruments domiciled in the naira.

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However, just the same way Nigeria is worried about the current rate of inflation reaching new highs, the UK is experiencing a different kind of problem as it heads towards deflationary levels.

READ MORE: Analysis: NNPC and its refining losses 

This, of course, is another dangerous position because deflation contributes to lower economic growth as falling prices typically discourage spending with consumers delaying their purchases to later periods where prices are expected to be lower.

This goes to show that extreme levels of inflation, whether very low or very high, has a negative impact on economic growth and could be as dangerous.

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READ ALSO: Covid-19: Nigerian government explains how it will fund proposed N2.3 trillion stimulus

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What is inflation?
Inflation is the rate at which the prices for goods and services increase.

It’s one of the key measures of financial wellbeing because it affects what consumers can buy for their money. If there is inflation, money doesn’t go as far.

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It’s expressed as a percentage increase or decrease in prices over time. For example, if the inflation rate for the cost of a litre of petrol is 2% a year, motorists need to spend 2% more at the pump than 12 months earlier.

And if wages don’t keep up with inflation, purchasing power and the standard of living fall.

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Macro-Economic News

Nigeria’s inflation rate hits 15.75% in December 2020, highest in 3 years

This is 0.86% points higher than the rate of 14.89% recorded in November 2020.

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Despite billions on agriculture, food inflation up by 108% since 2015.

Nigeria’s inflation rate increased by 15.75% (year-on-year) in December 2020, the highest rate recorded in 3 years.

According to the latest Consumer Price Index report, released by the National Bureau of Statistics (NBS), the latest figure is 0.86% points higher than the rate of 14.89% recorded in November 2020.

On a month-on-month basis, the index increased by 1.61% in December 2020. This is 0.01% point higher than the rate recorded in November 2020 (1.60%).

READ: Inflation rate up 207% since 2009 as bad economic policies ravages naira.

Food inflation

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The closely watched index rose sharply by 19.56% in December compared to 18.3% recorded in the previous month.

  • On a month-on-month basis, the food sub-index increased by 2.05% in December 2020, up by 0.01% point from 2.04% recorded in November 2020.
  • The rise in the food index was caused by increases recorded in prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, vegetable, fish and oils and fats.

READ: Hope rises for employment in December 2020 and January 2021 – CBN survey Report 

Core inflation

The “All items less farm produce’‘ or Core inflation, which excludes the prices of volatile agricultural produce stood at 11.37% in December 2020, up by 0.32% when compared with 11.05% recorded in November 2020.

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  • Also, on a month-on-month basis, the core sub-index increased by 1.10% in December 2020. This was up by 0.39% when compared with 0.71% recorded in November 2020.
  • The highest increases were recorded in prices of passenger transport by air, medical services, hospital services, shoes and other footwear, passenger transport by road, miscellaneous services relating to dwellings, hairdressing salons and personal grooming establishments, and repair of furniture.
  • Others include vehicle spare parts, pharmaceutical products, motor cars, maintenance and repair of personal transport equipment, paramedical services, motorcycle, dental services, and bicycles.

READ: Cost of data subscription reduces by over 50% in 2020

Worst hit states

  • In the month of December 2020, Bauchi State recorded the highest inflation rate at 19.85%, closely followed by Kogi State with an inflation rate of 18.4%
  • Others include Edo (18.1%), Zamfara (17.9%), and Sokoto (17.6%)
  • In terms of food inflation, Edo State also recorded the highest rise in inflation rate with 24.1%, followed by Kogi (23.16%), Sokoto (22.2%); while Kwara and Zamfara State recorded food inflation of 22.1% and 21.7% respectively.

READ: Nigeria’s inflation expected to maintain double digit in the next one year

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Meanwhile, the urban inflation rate increased by 16.33% (year-on-year) in December 2020 from 15.47% recorded in November 2020, while the rural inflation rate increased by 15.20% compared to 14.33% recorded in November 2020.

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What this means

The rise in the consumer price index indicates that consumers spent more in the month of December compared to the previous month.

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  • This implies that the purchasing power of Nigerians is continually eroding.
  • Nigerians could be faced with new worries if the second wave of the covid-19 pandemic leads to a second round of lockdown in the country.
  • The significant increase could, however, be attributed to the Christmas and New year festivities in the month of December.

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Macro-Economic News

Nigeria’s total public debt increases by N6 trillion in 1 year

Nigeria’s total public debt stock as of September 2020, increased by over N6 trillion in just one year.

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How to avoid debt despite economic challenges

Nigeria’s total public debt stock as of September 2020, increased by over N6 trillion in just one year. This is according to the Nigerian Domestic and Foreign Debt report, recently released by the National Bureau of Statistics (NBS).

The total public debt (External and Domestic) incurred by Nigeria stood at N32.22 trillion ($84.57 billion) as of September 2020, which represents an additional N6.01 trillion when compared to N26.21 trillion recorded as of the corresponding period of 2019.

READ: Nigeria total public debt hits N31 trillion as debt service gulp over N1.2 trillion in H1 2020 

The breakdown shows that external debts accounted for 37.82% (N12.19 trillion) of the total debt stock, while domestic debts at N20.04 trillion represented 62.18% of the total.

Breakdown

  • Further disaggregation of Nigeria’s foreign debt showed that $16.74bn of the debt was multilateral.
  • Also, $502.38m was bilateral (AFD) and another $3.26bn bilateral from the Exim Bank of China, JICA, India, and
    KFW while $11.17bn was commercial which are Eurobonds and Diaspora Bonds.
  • Total external debt grew by $5.04 billion (N3.9 trillion) within the period, indicating an increase of 18.72%.
  • Total domestic debt on the other hand declined by $5.86 billion. However, it represents an increase in Naira value of N2.09 trillion, largely due to multiple devaluations of the currency during the period.

READ: Growing concern for Nigeria’s ballooning debt profile

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A cursory look at the breakdown of the domestic debts show that 73.53% (N11.65 trillion) were in form of Federal Government bonds, 17.17% (N2.72 trillion) in Treasury bills, followed by Promissory Notes accounting for 6.13% (N971.9 billion) of the total federal government domestic debts.

Others include; FGN Sukuk (N362.6 billion), Treasury Bonds (N100.9 billion), Green bond (N25.7 billion), and Savings bond (N12.6 billion).

READ: Debt burden of the least developed nations rises to $744 billion – World Bank

More loans to be expected

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On the 31st of December 2020, President Buhari signed the 2021 appropriation bill of N13.59 trillion into law, which 25.7% higher than the revised 2020 budget of  N10.8 trillion. However, the budget comes with a deficit of N5.6 trillion, which is expected to be financed mainly through borrowings both externally and domestically.

READ: Global Economy to grow by 4% in 2021 – World Bank

According to the minister of Finance, Budget, and National Planning, Dr. Zainab Ahmed, in a budget presentation on Tuesday, N2.34 trillion will be sourced each from domestic and foreign sources respectively, N709.69 billion from Multilateral/bilateral loan drawdowns, and N205.15 billion from privatisation proceeds.

READ: Analysis: Nigeria needs an austerity diet

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Recall that Nairametrics reported in December that, the World Bank finally approved a $1.5 billion loan request made by Nigeria as budget support in order to cushion the impact of the covid-19 pandemic on the country’s revenue.

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It is also worth noting that the federal government will be tapping into funds in unclaimed funds and dormant accounts.

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Macro-Economic News

PMI: Nigeria’s manufacturing sector contracts in December

The manufacturing sector relapsed in December from 50.2 index points recorded in the month of November 2020.

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Manufacturing sector in Nigeria and the reality of a "new normal"

The Manufacturing Purchasing Managers’ Index (PMI), for the month of December, witnessed a contraction, as it stood at 49.6 index points. This was disclosed in the PMI report, recently released by the Central Bank of Nigeria (CBN).

According to the report, the manufacturing sector relapsed from 50.2 index points recorded in the month of November 2020. It however, gained marginally compared to 49.4 index points recorded in October 2020.

READ: CBN report projects greater employment prospects in 2021

The report also disclosed that out of the 14 surveyed subsectors, 4 subsectors reported expansion (above 50% threshold) in the review month in the following order:

  • Transportation equipment
  • Nonmetallic mineral products
  • Paper products
  • Food, beverage & tobacco products.

READ: Frantic CBN allows diaspora remittances to be withdrawn in dollars and sold anywhere including black market

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However, textile, apparel, leather, and footwear subsector remained stationary while the remaining 9 subsectors reported contractions in the following order:

  • Primary metal,
  • Petroleum & coal products
  • Cement
  • Electrical equipment
  • Fabricated metal products
  • Printing & related support activities
  • Plastics & rubber products
  • Chemical & pharmaceutical products and
  • Furniture & related products

For context read: Nigeria’s manufacturing sector contracts for 4th consecutive month – CBN

Non-manufacturing PMI

PMI for the non-manufacturing sector stood at 45.7 points in the month of December 2020, indicating contraction in Non-manufacturing PMI for the ninth consecutive months.

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Of the 17 surveyed sub-sectors, 5 subsectors reported growth in the following order:

  • Arts, Entertainment & Recreation
  • Water supply, sewage & waste management
  • Electricity, gas, steam & air conditioning supply
  • Educational services and Professional
  • Scientific & technical services

READ: These industries appear to have returned to pre-pandemic levels

While twelve subsectors reported declines in the following order: Management of companies; Utilities; Transportation & warehousing; Real estate rental & leasing; Construction; Finance & insurance; Agriculture; Wholesale/Retail trade; Information & communication; Repair, Maintenance/Washing Of Motor Vehicles; Health care & social assistance and Accommodation & food services.

What you need to know

  • In December 2020, suppliers’ delivery time was faster, new orders and production level increased while employment level and raw materials inventories contracted.
  • The business activity index for the non-manufacturing sector contracted at 46.9 points from the expansionary level recorded in the month of November 2020.
  • The employment level Index for the non-manufacturing sector in the month of December 2020 stood at 45.1 points, indicating contraction in employment level for the ninth consecutive months.

READ: COVID-19: CACOVID spent N43.27 billion to support 3 key priorities – CBN

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What this means

PMI is a survey that is conducted by the Statistics Department of the Central Bank of Nigeria and shows the changes in the level of business activities in the current month compared with the preceding month.

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  • For each of the indicators measured, this report shows the diffusion index of the responses, which is computed as the percentage of responses with positive change plus half of the percentage of those reporting no change, except for supplier delivery time, which is computed as the percentage of responses with negative change plus half of the percentage of those reporting no change.
  • A composite PMI above 50 points indicates that the manufacturing/non-manufacturing economy is generally expanding. 50 points indicate that there is no change, while a PMI below 50 points indicates that it is generally contracting.
  • A contraction in manufacturing activities means that the sector is yet to recover from the covid induced downturn which crippled the manufacturing activities for 6 consecutive months before recording slight expansion in the previous month.

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