Inflation Decline: Why CBN Should Remain Standby- Otunuga

The growing confidence in Nigeria’s economic recovery was bolstered on Thursday following reports that the nation’s rate of inflation declined for the fourth consecutive month in May to 16.25% , the lowest level in a year, says Lukman Otunuga, research analyst at FXTM.

However, he believes there some economic indices that portend the Central Bank of Nigeria (CN) must be vigilant to absorb any uncertainty in the market.  

The National Bureau of Statistics (NBS) on Tuesday said that the country’s inflation dropped to 16.25 per cent in May from 17.24 per cent in April.

The NBS made this known in its “Consumer Price Index (CPI) May 2017’’ report released on Thursday in Abuja.

According to the bureau, this is the fourth consecutive decline in the rate of inflation since January. On a month-on-month basis, the bureau stated that the Headline index increased by 1.88 per cent in May 2017, 0.28 per cent points higher than the rate of 1.60 per cent recorded in April 2017.

It stated that food inflation increased by 19.27 per cent (year-on-year) in May 2017, down by 0.03 per cent points from the rate of 19.30 per cent recorded in April.

On a month-on-month basis, the bureau stated that the food sub-index increased by 2.54 per cent in May, up by 0.50 per cent points from 2.04 per cent recorded in April.

The bureau said that rise in the food index was caused by increases in prices of meat, bread and cereals, fish, potatoes, milk cheese and eggs as well as vegetables such as tomatoes.

The percentage change in the average composite CPI for the 12 months period ending in May 2017 over the average of the CPI for the previous 12 months period was 17.63 per cent. “This is against 17.59 per cent recorded in April 2017, it said.’’

It said the urban index rose by 16.34 per cent (year-on-year) in May 2017 from 17.62 per cent recorded in April.

Accordingly, the rural index increased by 16.02 per cent in May from 16.69 per cent in April. On month-on-month basis, it stated that the urban index rose by 1.84 per cent in May from 1.61 per cent recorded in April, while the rural index rose by 1.92 per cent in May from 1.59 per cent in April.

The CPI measures the average changeover time in prices of goods and services consumed by people for day-to-day living.

The construction of the CPI combines economic theory, sampling and other statistical techniques using data from other surveys to produce a weighted measure of average price changes in the Nigerian economy.

Commenting on NBS Inflation rate, Lukman Otunuga said, “The growing confidence in Nigeria’s economic recovery was bolstered on Thursday following reports that the nation’s rate of inflation declined for the fourth consecutive month in May to 16.25% , the lowest level in a year.

“This strong display of price stability may boost investor risk appetite towards the nation and support the Nigerian Stock Exchange which has already climbed to a two-year high. Although inflation is cooling, the Central Bank of Nigeria is likely to remain on standby until core economic data shows repeated signs of stability”.

He added that ehile the nation’s macro fundamentals are slowly healing, the sharp decline in oil prices presents a threat to the current recovery.

“With oil prices heavily linked to the nation’s foreign external reserves, a drop in the commodity has the ability to reduce Dollar supplies, ultimately impacting the stability of the Naira Exchange. As the long-term outlook for oil remains tilted to the downside, Nigeria must push ahead with diversifying while breaking away from oil dependence,” Otunuga added.

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