The skyrocketing prices of goods and services across the country have reflected in Nigeria’s inflation rate climbing to a near six-year high of 13.7 percent in April, 0.9 percentage point higher than the previous month’s level of 12.8 percent. The cost-push inflation is driven primarily by the severe scarcity of petroleum products, which had forced increases in transportation cost and consequently, arbitrary increases in cost of all other commodities and services consistently for several months now.
National Bureau of Statistics, NBS, in a report Monday, said the April inflation reading, the highest level since August 2010, reflected increases across all sectors, unlike the previous months which had one or two sectoral exceptions. “Lingering structural constraints continue to manifest spill-overs in April as electricity rates, kerosene prices, the impact of higher PMS (petrol) prices and vehicle spare parts were the largest contributors to the core sub index during the month,” NBS stated.
These items, as well as other imported items, according to NBS, continued to have ripple effects across many divisions that contribute to the core consumer price index. Fish, vegetables Food index reflected tighter supplies across most groups that contribute to the sub-index. The sub-index increased by 13.2 percent in April, up by 0.4 percentage point from March as all major food groups increased at a faster pace driven by higher prices in fish, bread/cereals and vegetables groups. Year-on-year, the urban and rural indices recorded marked increases for the third consecutive month.
The urban index rose by 15.1 percent, 1.6 percentage points from 13.5 percent in March, while upward pressure on prices were relatively less severe in the rural areas as the index increased 12.8 percent year-on-year, 0.7 percentage point from 12.0 percent in March. Increases in imported and domestically produced foods resulted in a higher increase in the food sub-index in April, adding that all groups which contribute to the index increased, with the exception of the fruit and potatoes, yams and other tuber groups. Implication The latest inflation report indicates worsening economic conditions in the country, where gross domestic product, GDP, growth was just 2.8 percent as at last quarter of 2015, its lowest rate since 1999, and speculation of a further decline in the first quarter and first half 2016 is popular among economy analysts. With the current inflation rate the Central Bank of Nigeria, CBN, appears to have been pushed to the wall once again on its benchmark interest rate, as the existing Monetary Policy Rate of 12 percent is now grossly negative.
The apex bank had shifted the benchmark rate to 12 percent from 11 percent previous month when the inflation rate surpassed it, a situation which renders interest rates not only negative but a disincentive to savings. Also, the present inflation rate has surpassed the apex bank’s inflation target maximum of 9.6 percent by a huge gap of 4.1 percentage points, thereby complicating the inflation targeting strategy of its monetary policy measures. With this development many financial analysts would be expecting next week’s Monetary Policy Committee, MPC, meeting of the apex bank to fundamentally overhaul its policy framework.