The National Bureau of Statistics (NBS) yesterday released the Consumer Price Index (CPI) report for February 2015 saying that prices of goods and services rose slightly by 20 basis points, which is about 0.2 per cent. It said that rise in prices headline inflation — measured Year-on-Year (Y-o-Y) was estimated at 8.4 per cent, 20bps higher than 8.2per cent reported in January 2015.
Reacting to the news in a flash note to investors Afrinvest said “This was largely in line with our earlier forecast and analyst expectations, as we anticipated the inflationary pressure to intensify in February due to the weakness of the domestic currency over the past six months. This had a knock-on impact on prices of both imported food and non-food items. By the NBS report, the faster rise in the Headline Index in February was against the backdrop of the 20 basis points increases from January in both the Food and Core Indices to 9.4 per cent and 7.0 per cent respectively in February”.
”The Food sub-index of CPI in February rose 20bps from January to a 6-month high – 9.4 per cent Y-o-Y in February. This was attributable to the faster movement in the prices of imported food items, as reflected in the faster pace of growth in the Imported Food Index in February to 8.8 per cent – a 12-month high.
“This is expected given the depreciation of the Naira in January which pressured prices of imported products prior to the tactical devaluation of the currency in February following CBN’s closure of the official window. Slower growth in the Bread and Cereal group however moderated Food Inflation in February, compared to other groups which rose faster in the month. Consequently, the Food Index measured Month-on-Month (M-o-M) rose at a slower pace in February – 0.7% relative to 0.9% recorded in January. The Fish, Meat, Vegetables, and “Potatoes, Yams and Other Tubers” categories recorded the highest price increases in the month.
The Core Index, which captures movements in the prices of all items in the CPI except farm produces, rose 20bps from January to a 7-month high of 7.0% in February. Prices rose at a faster pace in all major non-food divisions save for Recreational and Culture Division which increased at a slower pace Y-o-Y. The fastest growth Y-o-Y was recorded in “Furnishings & Household Equipment Maintenance” and “Restaurant & Hotels” divisions of the Core Index. However, M-o-M growth in the Core Index remained muted at 0.7%, with the highest increases recorded in the “appliances, articles and products for personal care”, and “fuels and lubricants for personal transport equipment” groups amongst others.
According to Afrinvest “The upward trajectory of prices both in the Food and Core Indices in January and elevated risk to price stability due to the continuous downward pressure on crude oil prices, strength of the Dollars in the global currencies market and consequently weaker Naira represents a significant challenge to monetary policy. The CBN has hitherto set a single digit inflation target (6.0% – 9.0% band) for the year. We largely expect the Headline Inflation rate in 2015 to overshoot this target as we estimate Inflation rate to average 9.5% Y-o-Y in 2015.
”The current high interest rate environment generated by policy responses to the exchange rate pressures and macroeconomic instability within the recent times will significantly affect businesses and weaken economic growth. However, a further increase in MPR may not result in moderating inflationary pressure in the economy but rather stoke it, with structural factors (cost push) being the major driver of inflation at the moment. Yet, loosening monetary policy is not an option given the need to consolidate the recently observed fragile stability in the currency market, amid significant headwinds in the near term. With the effectiveness of monetary policy already reaching a limit, coupled with considerations of the political charged atmosphere, we do not expect the CBN to alter the monetary policy course in the next MPC meeting holding between 23rd and 24th of March. Hence, we anticipate the committee members to retain policy rates at current levels”.
