Friday, June 07, 2019 05:50PM /by FDC
Nigeria’s headline inflation is projected to inch up 0.01% to 11.38% in the month of May. This will be due to a fall in output, evidenced by the sharp drop (16.24%) in the output sub-index of the PMI to 49 points in the month of May. Planting season shortages contributed to an increase in the price of some commodities like tomatoes, pepper and yam. Notwithstanding, the price of rice and melon declined while garri was flat. The money supply effect was muted as M2 growth (annualized at 5.54%) is still below the CBN’s target of 12.99%. Even though the average opening position of the banking system increased to N289.48bn, its impact was limited by the CBN’s aggressive liquidity mop-up through OMO activities. OMO bills issued increased by 114.6% to N1.13trn.
We are also anticipating a 0.16% rise in the month-on-month inflation to 1.1% (14.04% annualized) in the month of May. Even though the uptick in the headline inflation is expected to be marginal, rising monthly inflation suggests intensification of the inflationary pressures in the months ahead especially with the minimum wage implementation.
Core inflation (inflation less seasonalities) is expected to decline marginally to 9.2% in the month of May from 9.3% in April. This would be driven by the relative stability in the exchange rate. The naira was stable within the range of N360/$ - N361/$ at the parallel market.
inflation-inducing factors noticeable in the month include:
Lending to be accompanied with increased labour productivity to taper inflation
the last MPC meeting, the committee noted that the economy has a spare capacity
for non-inflationary growth as actual output is still below the country’s
potential capacity (a recessionary gap), thus suggesting the need for a boost
in credit to the private sector (CPS). Although, credit to the private sector
grew by 9.64% in April, it has remained below the provisional benchmark of
12.39% since the beginning of the year. An increase in CPS is positive for
investments. According to Rencap, Nigeria needs to increase its
investment-to-GDP to 25% (currently at 14%) to achieve sustainable growth.
Growth is also a function of productivity. Labour productivity has been
negative in the last four years (currently -0.9%). A higher minimum wage
without a corresponding increase in labour productivity could be inflationary.
Peer Comparison – 4 greens, 3 reds
trends in Sub-Saharan Africa (SSA) have moved in mixed directions since the
beginning of the year. Three of the SSA countries under our review released
their inflation numbers in the month of May. While inflationary pressures are
mounting in Zambia, Kenya and Uganda recorded declines. For the month of April,
Angola and South Africa recorded a decline while Ghana posted an
At the last MPC meeting, most of the SSA countries under our review left their monetary policy rate unchanged.
expect inflationary pressures to intensify in June as the planting season
effect lingers. This could be further heightened by the minimum wage impact,
increased forex demand for summer and Hajj. The monetary authority, which is
saddled with the responsibility of maintaining price and exchange rate
stability, is more likely to be hawkish in its policy decisions.
However, the committee, being cautious of the slow economic recovery, could leave its monetary policy parameters unchanged but likely to continue with its aggressive liquidity mop-up through OMO activities.