The CPI report for April was released yesterday. Surprisingly, headline inflation bucked its upward trend. The index fell marginally by 0.05% to 18.12% after increasing steadily for 19 months. On a monthly basis, it fell sharply by 0.59% to 0.97% (12.3% annualized). This can be partly attributed to the moderation in the food sub-index to 22.72% from 22.95% in March. Of all the inflation sub-indices, only core inflation increased with the highest increases recorded in health (15.88%) and transport (14.87%).
The consensus forecast by Bloomberg was for a rate of 18.8%. Most analyst expectations were anchored on the view that the major causes of inflation remain entrenched. The news of a slight drop in inflation was greeted with disbelief by investors, analysts and consumers. This is because anecdotal evidence suggests the exact opposite. Most proxies like the AFEX commodity index and retail prices in urban markets have shown that prices spiked in the last 2-3 months. Some discerning analysts have attributed the slowing inflation to base year effects. This is because in Q2’20, there was a mild rise in inflation due to the immediate impact of the shortages related to the closure of the airports and disruption to supplies. In April and May last year, there was a time when tissue paper, batteries and many commodities were in short supply. Therefore, if you are comparing prices in Apr’21 with Apr’20, some of the price moderation could be due partly to the base year effects.
Some analysts have raised eyebrows about how Nigerian inflation could be falling when global food prices are rising and US inflation is at an 11 year high of 4.2% and the naira is 13.35% weaker than 12 months ago. In Economics, one month data is not enough to form a trend. Therefore the conversation about the moderating inflation when the anecdotal proxies are moving in the opposite direction will be interrogated in weeks ahead.
In the download, the FDC Think Tank shares its thoughts on the impact of April’s inflation numbers on the economy.
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