Nigeria Economy | |
Nigeria Economy | |
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Wednesday, October 16, 2019
/10:02 AM / By FDC Ltd / Header Image Credit: The Guardian Nigeria
Unintended consequences of border closure take its toll
The
temporary closure of the border in Nigeria has led to a surge in customs
revenue and reduced smuggling in the short run. The national import bill should
theoretically be lower and the road to self-sufficiency should be assured.
'Be careful what you wish for, you may just get it'
However,
the law of unintended consequences has caught up with this laudable objective.
Shortages of some critical imports at a time of Christmas stockpiling has
driven up the price level to 11.24% after 3 months of declining inflation. Not
only headline inflation, but all other sub-sets and baskets were affected. Core
inflation, food, urban and monthly inflation all surged. The last time that
this happened was 23 months ago.
Analysts
were all in agreement in their forecasts that inflation in September was upward
bound. The principal factors responsible for this increase were cost-push and
shortages at a time of seasonal stockpiling. However, money supply aggregates
played a role in the stoking of inflationary embers. M2 grew by 2.87% in
August. The NBS data shows that the prices of some products increased - Bread
and cereals, Fish, Meat, Potatoes, yam and other tubers, Vegetables and Oils
and fats
Data Breakdown
Month-on-month inflation marginally up by 0.05% to 1.04% in September
Month-on-month
inflation, a more relevant measure of prices, moved in the same direction with
headline inflation, increasing to 1.04% (13.25% annualized) from 0.99% (12.54%
annualized) in August. This was prompted by higher food prices especially for
smuggled commodities such as rice and frozen foods.
Food inflation jumps by 0.34% to 13.51%
In the
food sub-index, annual and monthly inflation reversed its declining trend. It
increased to 13.51% and 1.30% respectively. This is not surprising as the
combination of border closures and broad money supply growth pushed up prices
of commodities especially food items such as rice and frozen foods. The food
items that also recorded price increase were: Bread and cereals, Fish, Meat,
Potatoes, yam and other tubers, Vegetables and Oils and fats.
Core inflation up to 8.94%
The
year-on-year core index increased to 8.94% in September from 8.68% in August.
On a monthly basis, it rose to 0.89% from 0.67% in August. This is despite the
stability in the exchange rate. The naira traded flat at N360/$ at the parallel
market. The items that recorded the highest price increase include cleaning,
repair and hire of clothing, glassware, tableware and household utensils,
garment, repair of household appliances, hospital services and other articles
of clothing accessories.
Rural & urban inflation rises
On an
annual basis, year-on-year urban and rural inflation rose by 0.30% and 0.16%
respectively to 11.78% and 10.77% in September. Similarly, the monthly urban
and rural inflation indices increased to 1.13% and 0.96% respectively from
1.04% and 0.93% in August. This reflects an increase in aggregate demand for
locally produced commodities.
State-by-state analysis - Kwara remains the best-performing state
Kwara
state retained its position as the best-performing state with an inflation rate
of 8.46%. Other states with low inflation rates were Bayelsa (9.40%) and Delta
(9.72%). The states with the highest inflation rates are mainly in the North
West - Kebbi (14.09%), Bauchi (13.74%) and Plateau (13.25%).
What next?
Growth
numbers are scheduled to be released on November 25th by the NBS. If the GDP
growth comes in tepid and underperforms, it will be a front burner issue for
the MPC. In addition, if the oil prices fall below $58pb and gross external
reserves slide further (currently $41.12bn), the MPC could lean towards
resuming the tightening cycle at its next meeting in November 25/26.
1.
Border Closure
Hitting The Price of Rice - CSL Research, October 04,
2019
2.
Border Closures
May Only Offer Temporary Subsidy Reprieve - CardinalStone
Research, October 11, 2019
3.
Effects of
Closing The SEME Border - Coronation Research,
October 15, 2019
4.
Border Closures
Begin to Take Toll on Prices - CardinalStone Research October 15,
2019
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