Drop in inflation may not be sustained - FDC

The slight drop in Nigeria’s inflation rate in April came as a surprise and may not be sustained, the Financial Derivatives Company Limited has said.

The National Bureau of Statistics disclosed on Monday that the headline inflation for April fell slightly by 0.05 per cent to 18.12 per cent from 18.17 per cent in March, and food inflation fell to 22.72 per cent from 22.95 per cent.

“This is the first decline since August 2019 when the land borders were closed. The unexpected drop in the annual price level can be partly attributed to the decline in the food sub-index,” the FDC analysts said in a new report.

The analysts, led by foremost economist Bismarck Rewane, noted that the consensus view of economists compiled by Bloomberg forecast was that the inflation rate for April would increase to 18.8 per cent.

They said, “The variance between forecasts and the published data can be explained by inflation expectations and the possible underestimation of consumer resistance to price increases. Most analyst expectations were anchored on the view that the major causes of inflation remain entrenched.

“It is worth mentioning that a decline in inflation does not necessarily imply that prices are falling. It simply means that commodity prices are increasing, albeit at a slower pace. Of all the inflation sub-indices, only core inflation increased.”

The FDC noted that all non-food items increased, particularly healthcare (15.88 per cent) and transport (14.87 per cent). Rising inflation, a threat to industrial recovery, says MANExperts blame insecurity as inflation hits record 16.47%.

The analysts said, “This suggests that inflation is yet to reach an inflection point. Hence, the decline in inflation is not likely to be sustained.

“The slight drop in inflation came as a surprise to investors, analysts and consumers. This is because anecdotal evidence suggests the exact opposite. Market proxies like the AFEX commodity index and retail prices in urban markets showed a spike in the general price level due to output shocks and supply chain disruptions emanating from heightened insecurity.”

The FDC said some analysts had attributed the slowdown in inflation to base year effects. It noted that in the second quarter of 2020, inflation rose mildly due to the immediate impact of panic-buying amid output shortages and supply chain disruptions.