Lower Commodity Prices Weaken Inflation to 11.22%

James Emejo in Abuja

The Consumer Price Index (CPI), which measures inflation, declined to 11.22 per cent year-on-year in June compared to 11.40 per cent in May, according to the National Bureau of Statistics (NBS).
Food inflation also reduced to 13.56 per cent in June compared to 13.79 per cent in the preceding month.

According to the CPI figures for June, which NBS released yesterday, core inflation, which excludes the prices of volatile agricultural produce, dropped to 8.8 per cent in June, down by 0.2 per cent compared with 9.0 per cent recorded in May.

The statistical agency further noted that prices were moderated in all the divisions that determined the headline index, leading to 0.18 per cent reduction in inflation.

Also, the urban inflation rate slowed to 11.61 per cent (year-on-year) in June, compared to 11.76 per cent recorded in May while the rural inflation rate reduced to 10.87 per cent from 11.08 per cent in the preceding month.

According to the NBS, on a month-on-month, the urban index rose by 1.10 per cent, up by 0.05 per cent from 1.15 per cent recorded in May, while the rural index also rose by 1.05 per cent in June, up by 0.02 per cent from 1.07 per cent rate recorded in May.

It, however, said the moderation in the food index was caused by muted increases in the prices of bread and cereals, meat, oils and fats, potatoes, yam and other tubers, fish, vegetables and fruits.

“On month-on-month basis, the food sub-index increased by 1.36 percent in June 2019, down by 0.05 per cent points from 1.41 per cent recorded in May 2019.
“The average annual rate of change of the food sub-index for the twelve-month period ending June 2019 over the previous twelve-month average was 13.42 per cent, 0.05 percent points higher from the average annual rate of change recorded in May 2019 (13.37) per cent,” the NBS stated.

On month-on-month, the core sub-index increased by 0.85 per cent in June, up by 0.10 per cent when compared with 0.75 per cent recorded in May.
The NBS added that the highest increases in the sub-core index were recorded in the prices of medical and hospital services, cleaning, repair and hire of clothing, repair and hire of footwear, repair of household appliances, actual and imputed rentals for housing, major household appliances whether electronic or not and tobacco.

“The average 12-month annual rate of change of the index was 9.64 per cent for the twelve-month period ending June 2019; this is 0.13 per cent points lower than 9.77 per cent recorded in May 2019,” it stated.
One of the major concerns around high inflation had been its benign effect on both monetary and fiscal policy and the economy.
The drop in the headline index will excite Nigerians, who had endured increases in the prices of basic commodities in recent times, often compounding the cost of living.

Inflation had dropped in January 2019 when it declined to 11.37 per cent from 11.44 per cent in December in 2018.
The headline index further reduced to 11.31 per cent in February and 11.25 per cent in March but resorted to the upward trajectory in April when it climbed to 11.37 per cent- and further to 11.40 per cent in May- before falling to 11.22 per cent in June.

The deceleration in inflation will provide reprieve for the Central Bank of Nigeria (CBN), which had been struggling to tame inflation in recent times.
The decline in the headline index could signal a positive start of CBN Governor, Mr. Godwin Emefiele’s second term, having vowed to curtail the index.

Speaking recently while unveiling his agenda for the next five years of his second tenure as the apex bank boss, Emefiele had said he would strive to sustain positive interest rate regime to the delight of important stakeholders as well as work to bring down the prices of food items, which continued to exert inflationary pressures.
He had said monetary policy measures would be geared towards containing inflationary pressures and supporting improved productivity in the agricultural and manufacturing sectors.

According to him, working with other stakeholders, the CBN will reduce the cost of food items, which have considerable weight on inflation.
“Our ultimate objective is to anchor the public’s inflation expectation at single-digit in the medium to long run. We believe a low and stable inflationary environment is essential to the growth of our economy because it will help support long term planning by individuals and businesses.

“It will also help to lower interest rates charged by banks to businesses thereby facilitating improved access to credit and a corresponding growth in output and employment,” he had said.

Nonetheless, the consecutive monthly drop in inflation in previous months had allowed for a rare opportunity for the CBN to tinker with the monetary policy rate (interest rate), which was reduced by 50 basis points recently to the excitement of the markets.

The adjustment in MPR finally came after holding the rate at 14 per cent for about two years, largely due to inflation as the former rate cannot go below the latter rate.

There had been increasing expectations that declining rate of inflation could further encourage the apex bank to loosen monetary policy rate, thereby reducing the cost of borrowing to boost growth.