Monday, October 19, 2020 / 01:50PM / PFI Capital/Header Image Credit: PFI Capital
Early morning of Thursday 15th October 2020, the National Bureau of Statistics released the Consumer Price Index (CPI) report for September. The CPI which measures inflation increased by 13.71 percent (year-on-year) representing 0.49% higher than the rate recorded in August 2020 (13.22%) percent.
On a month-on-month basis, the Headline index increased by 1.48% in September 2020. This is 0.14% rate higher than the rate recorded in August 2020 (1.34%)
The percentage change in the average composite CPI for the twelve months period ending September 2020 over the average of the CPI for the previous twelve months period was 12.44%, showing 0.21 percent point from 12.23% recorded in August 2020.
Food Inflation Index Remain Pressured
The composite food index rose by 16.66% in September 2020 compared to 16.00% in August 2020.
This rise in the food index is attributable to the increase in prices of Bread, Cereals, meat and other tubers following the continuous border closure and delayed planting season as a result of the COVID-19 lockdown in the first half of the year.
On month-on-month basis, the food sub-index increased by 1.88% in September 2020, up by 0.21
High Prices to be worsened by expansionary Monetary Policy
The Monetary Policy Committee (MPC) in their last meeting voted for a downward review of the MPR by 100 bps from 12.50% to 11.5%, despite the spike in the CPI to 13.22% from 12.82% in September.
This and other expansionary measures coupled with the disbursement of COVID-19 stimulus package through the CBN development financing have contributed to the elevated level of system liquidity stimulating the bullish sentiment witnessed in the equities market between June and October.
Era of Negative Real Returns not ending Soon
With the continuous pressure on rates in the fixed income space in the midst of increasing liquidity and surge in the value of Federal Government bonds, investors are being compelled to bear with the negative real rate of returns or increase their risk appetites. Yields at the NTB Primary Market Auction on Wednesday 14th October closed at 1.02% per annum for both 91 days and 182 days maturities while that of 364 days maturities settled at 2.04% per annum indicating a -9.5% real rate of returns. This demands a new level of risk management approach from investors and asset managers as they diversified their investment across other asset classes especially equities.
Previous Report from PFI Capital
11. Performance Review of the Economic Recovery and Growth Plan - PFI Capital
12. Implications of Nigeria's Consumption Expenditure Pattern - PFI Capital Limited