Analysts Foresee Further Increase in MPR as Inflation Soars
Nume Ekeghe
Following the recent numbers released by the Nigeria Bureau of Statistics (NBS), which saw headline inflation grew higher by 0.18 per cent to 22.22 per cent, analysts have predicted a further increase in the Monetary policy Rate (MPR).
The increase in inflation was mainly due to a surge in the food basket to 24.61 per cent from 24.45 per cent in March. The headline inflation has now increased for the 4th consecutive month as at April this year, an 18-year high.
However, the inflationary trend in Nigeria is consistent with both the global and regional directions. The commodities that witnessed the highest spikes are tomatoes, yam and other tubers. A basket of tomatoes jumped by 100 per cent to N70,000 from N35,000 in March.
Consequently, analyst at Financial Derivatives Company predicted a further hike in MPR rates.
In their economic bulletin, they stated, “There are two major uncertainties that have been impacting inflation expectations & psychology in the past few months. These are the price of diesel and the temporary appreciation of the Naira in the forex market. In April, the price of diesel fell by 35 per cent to N640/litre while the Naira appreciated by 1.33 per cent to N740/$ in the parallel market. The pass-through effect on domestic prices has been relatively muted. This is because according to Keynes, prices are usually sticky downwards.
“The MPC meets next week for the last time in this administration and expectations are for a 25 basis points increase in the monetary policy rate (MPR), in line with most other Central banks.”
On their part, analysts at Cordos Securities Limited, added that they expect inflation figures to continue trending upwards.
According to Cordos Securities, “ According to Famine Early Warning Systems Network (FEWSNET), the month of May marks the start of the planting season in the northern parts of the country, running concurrently with the off-season harvest of April to June. However, planting season started in April in the southern region and continues into May Given the preceding, we expect the food demand-supply gap to remain wide, supporting high food prices. Against that backdrop, we look for a 2.15 per cent month-on-month (m/m) increase in food inflation, translating to a year-on-year print of 24.78 per cent.”
“While pressures are currently subsiding in the core basket amidst lingering currency pressures, we believe the 2023 Fiscal Policy Measures and 2022 Finance Act introduce fresh risks to the core inflation over the short term. Accordingly, we forecast the core inflation to settle at 1.55 per cent m/m. with the favourable base effects from the prior year cascading to 19.75 per cent year-on-year (y/y). Tying all together, we now look for a 1.89 per cent m/m headline inflation rate, cascading to a y/y print of 22.35 per cent in May, “they added.
