Rising Inflation Triggers Fear of Interest Rate Hike

James Emejo in Abuja

The renewed inflationary pressure in the economy may compel the Central Bank of Nigeria (CBN) to raise interest rate just as it strives to maintain exchange rate stability, economists said yesterday.

The National Bureau of Statistics (NBS) report released yesterday showed that the Consumer Price Index (CPI), which measures inflation increased by 0.05 per cent to 11.28 per cent (year-on-year) in September compared to 11.23 per cent in the preceding month.

According to the CPI report for September, released by the statistical agency, increases were recorded in all the indicators, which determined the headline index.
Food inflation rose to 13.31 percent in the month in review compared to 13.16 per cent in August.
Core inflation stood at 9.80 per cent from 10.0 per cent in the preceding month.

However, in month-on-month, the headline index slowed to 0.84 per cent from 1.05 per cent in August.
According to the NBS, urban inflation rate increased by 11.70 per cent (year-on-year) in September from 11.67 per cent in August, while rural inflation rate also increased by 10.92 per cent within the review period from 10.84 per cent in the preceding month.

It stated that on a month-on-month basis, the urban index rose by 0.86 per cent in September, down by 0.14 from 1.00 per cent recorded in August, while the rural index also rose by 0.82 per cent, down by 0.14 per cent from the 0.96 per cent in August.

It added that the corresponding twelve-month year-on-year average percentage change for the urban index was 13.58 per cent in September, less than 13.95 per cent reported in the previous month, while the corresponding rural inflation rate was 12.80 per cent compared to 13.21 per cent in August.

CBN Deputy Governor, Dr. Joseph Nnanna, had warned about plans to increase the interest rate in response to higher inflation ahead of the general elections in February 2019.

Nnanna had said, “The central bank will tighten policy to respond to higher inflation. There’s a scope to raise rates before the elections in February. The central bank is still in the mood for tightening. How fast are we going to tighten is what members haven’t agreed upon.”

But reacting to the latest inflation data, Research Analyst at FXTM, Lukman Otunuga, pointed out that with consumer prices rising for the second consecutive month after 18 months of steady declines, concerns would heighten over inflation edging away from the Central Bank of Nigeria’s six-nine per cent target.
“Market expectations over an interest rate cut anytime soon are likely to diminish further following today’s inflation report.

“The combination of rising inflation, uncertainty ahead of the 2019 elections, global trade tensions and United States rate hike expectations are all likely factors to force the CBN to remain status quo this quarter,” Otunuga added.

Also, commenting on the latest inflation figures, Lagos-based CSL Stockbrokers Limited, noted that the rise in headline inflation came on the heels of the marginal uptick in food prices, following the aftermath of pastoral conflicts which was further amplified by episodes of flood in the food producing regions of the country.
“These, in conjunction with the dissipating base effects from the prior year led to the slight increase in the headline Inflation.

Over the rest of the year, we expect the Headline inflation to remain at double digit levels.
“This is based on our expectation of elevated system liquidity emanating from the 2018 budget spending, election related expenditures, higher Federation Account Allocation Committee (FAAC) disbursement occasioned by the uptick in oil prices, and the possibility of an increase in the minimum wage.

“That said, we expect the uptick in headline inflation to increase at a slightly faster pace in the coming months as the impact of the episodes of flood which ravaged some food producing states (Adamawa, Benue, Kano, Niger just to mention a few) becomes more pronounced,” the firm added.
Similarly, Cowry Asset Management Limited, pointed out that the recent flooding in September “was yet to reflect in the figures as food inflation slowed month-on-month to one per cent (from 1.42% in August); hence we anticipate sustained upward pressure on food prices in October.”