By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-Headline inflation in May 2014 rose 8 percent year-on-year (YoY) from 7.9 percent recorded the previous month.
Reports released by national bureau of statistics (NBS) Tuesday saythe marginal move higher began in February as it rose by 10 basis points (BPs), pushing the y/y headline figure higher increased prices in both the food and core sub-indices. ‘’Month-on-month, headline inflation rose by 0.78% in May, higher than the 0.20% m/m increase reported in April,’’ Cordros analysts said.
According to NBS, food sub-index rose by 30bps y/y (the highest y/y increase year-to-date) to 9.70%, driven by higher prices in the bread and cereal, fish, diary, fruits and vegetable groups.
Cordros analysts say food inflation reported would have been more significant but for relatively slower price increases in the meats, oils and fats, potatoes, and yam and tuber classes. ‘’The increase in y/y inflation in May marks the third consecutive month of increase and is probably tied to the rundown of inventory linked to the planting season. On a monthly basis, food prices rose by 0.80% in May, same as April’s m/m increase,’’ the Cordros analysts affirmed.
‘’We expect a moderation in food inflation in the coming months as new produce from upcoming harvests filter into the market,’’ the analysts said.
The NBS reported that core inflation’s upward march showed no sign of easing, aided by higher furniture and furnishings, garment, liquid and solid fuels, and rental prices. It also said core inflation which stood at 6.60% in January currently reads a 7.70% y/y increase in May. ‘’Month-on-month, core inflation rose by 0.60% in May, topping the 0.40% m/m increase recorded in April,’’ the report said.
However, Cordros further analysing said central bank of Nigeria’s (CBN’s) policy guidance is in stark contrast to inflation reality. It said giving the stubbornly high core inflation (and the gradual uptick in the headline figure) in the context of the CBN’s upper bound 2014 inflation target of 9.00%, ‘’the dovish tone emanating from the apex bank with regard to monetary policy is likely to sow the seed of confusion as questions now need to be raised as to what the core mandate(s) of the new regime is and its implication for markets,’’ the Cordros analysts said.
It said on the one hand, Godwin Emefiele, governor of Nigeria’s central bank has declared a willingness to gradually reduce interest rates after the 2015 general election but has given no explanation as to how this would be achieved while maintaining exchange rate stability (which is also a major target) and by extension price stability. ‘’These inconsistencies cloud the outlook for inflation going forward,’’ the Cordros analysts said.
According to their analysis , markets are likely to react little to the inflation figures as they await the next MPC meeting scheduled for 21 and 22 July which should provide more clarity, and at the very least provide hints on concrete policy measures to help the CBN actualise its new objectives.
