Inflation rate rose to 12.9 per cent in April from 12.1 per cent in March, year on year, driven largely by non-food items, items less agricultural products which rose above headline rate, data from the National Bureau of Statistics (NBS) revealed yesterday.
The rise in inflation came from a very unlikely area. Authorities have always feared the impact of food on inflation, particularly imported food inflation since the country imports considerable quantity of food. More so, food component contributes the largest to the inflation basket.
The inflation rate is one indicator watched keenly by foreign investors since it might impact on the value of their investment negatively if the rising trend continues.
Though the country’s economy is one of the fastest growing in the world and bond yields are attractive, poor fiscal management has had a tendency to build inflationary pressures.
There are also palpable fears, if some interest group bent of stripping the Central Bank of Nigeria (CBN) of its autonomy succeeds, the apex bank would have to be seeking approvals before pulling any of its strings in ensuring indicators that want to spill over are reined in. The figure compared with a 12.1 percent increase in March, year on year. Food inflation, the largest component of the index, fell slightly to 11.2 per cent, compared with 11.8 per cent in March.
The change in the overall index was largely because inflation in the month of April 2011 had been so subdued. “The higher year-on-year change could be partly attributable to base effects as the index was relatively more stable in April of 2011 ... lower price levels in April 2011 will reflect higher year-on-year percentage changes in April of 2012,” the statistics bureau said.
Inflation was worse in urban areas last month, registering a 13.4 percent rise, compared with 12.4 per cent in rural areas. Core inflation, stripping out volatile agricultural produce, rose by much more than the headline rate, by 14.7 per cent year-on-year, the statistics bureau said.
Analysts expect the upward trend in inflation to peak later this year, before it tails off slightly. “Inflation will probably peak at 14.4 per cent y/y in Jul-Aug, which is close to CBN and market expectations,” Standard Bank’s Samir Gadio told Reuters, adding that a sell-off in bonds, which yields are very inflation sensitive, was unlikely.
“Inflation is set to drop in Q4 2012 and reach high single-digits in early 2013, based on our forecasts,” he said.
The central bank has warned that inflationary pressures are too strong, hinting that it is likely to keep monetary policy tight this year, but nobody expects a rise in rates at the next meeting.
The bank held rates at 12 per cent last month, and governor Lamido Sanusi noted a “resurgence of inflationary pressures”, though he praised the government for efforts to introduce fiscal discipline into its 2012 budget.
“Given that inflation remains in the range projected by the CBN, we do not expect rates to be changed from 12 per cent at the May MPC meeting,” said Alan Cameron, a London-based economist for Nigerian stockbroker CSL.
“The CBN has said that it expects inflation to peak at 14-15 per cent in Q3 2012 ... inflation would need to move above this range in order for the CBN to reconsider its stance.”