Economists Predict Further Inflation Decline, Marginal GDP Growth

Economists have projected a further decline in Nigeria’s headline inflation for April 2018 even as they say the Gross Domestic Product for the first quarter may fall below expectations when the figures are released in coming days. According to them, the Consumer Price Index, which measures inflation, is anticipated to drop to 12.7 per cent, making it the 15th consecutive monthly decline and the lowest point since March 2016.

On April 13, Nigeria’s CPI rose to 13.34 per cent (year-on-year) in March, according to the report of the National Bureau of Statistics. The Bureau stated that the 13.34 per cent rate for March was 0.99 per cent points less than the 14.33 per cent recorded in February, adding that this was the 14th consecutive month since January 2017 that the country would be experiencing a slowdown in inflation.

However, in their May 2018 bulletin obtained on Friday, economists at Financial Derivatives Company, a firm headed by renowned economist, Bismarck Rewane, projected that the next CPI to be released by the NBS later this month would indicate a further decline in inflation.

They said, “Headline inflation is anticipated to drop to 12.7 per cent, the lowest level since March 2016. This is mainly attributed to the waning base year effect. Whilst core inflation is projected to move in tandem with the headline inflation, we expect food inflation to move in the opposite direction driven largely by higher food prices.

“So in April, headline inflation is projected to dip again. It is likely to be the 15th consecutive monthly decline and the lowest point since March 2016. Ironically, month-on-month inflation is expected to maintain its upward trend, increasing by 19 basis points to 1.03 per cent (13.09 per cent annualised) from 0.84 per cent (10.50 per cent annualised) in March.” To arrive at this forecast, the FDC team stated that it employed both quantitative and qualitative (critical and analytical reasoning) techniques.

On why it anticipated both food and core inflation to move in tandem with headline inflation, the team said it was because of the stability of the Naira, but noted that this could be undermined by the commencement of the planting season, with price increases associated with the period.

It added, “Interestingly, higher liquidity and declining interest rates are expected to have had a muted impact on headline inflation. However, the uptick in month-on-month inflation for the second consecutive month alludes to the fact that headline inflation could be moving towards an inflection point.

“This, coupled with the impending minimum wage review and the 10.5 per cent increase in diesel prices to N210/litre, is expected to feed into inflation level going forward.” They noted that on May 13 and 22 this year, the inflation and GDP data would be released, adding, “We are of the view that inflation will decline for the 15th consecutive month and that Q1 2018 (first quarter 2018) GDP growth will only increase by 1.5 per cent.”

Providing further outlook for the month of May, the economists stated that the GDP numbers to be released on May 22 were likely to be positive but below expectations. According to them, President Muhammadu Buhari needs lower interest rates to energise his base and win corporate support, adding that there is a temptation to appreciate the Naira for political expediency.

They stated that lower interest rates would boost demand for collective investor schemes with strong investment skills and observed that in the end, the politics of 2019 would be determined by economic impact. “Unemployment, inflation, misery index and inflation and GDP growth will be crucial to the politics,” the FDC team said. The economists further observed that Buhari’s economic diplomatic shuttle was drawing mixed reviews as his meetings with investors would be seen as broadly positive and the beginning of an era of constructive engagement with stakeholders.

They said, “The Federal Government in the meantime is promising to increase the minimum wage in September and spend billions on the Third Mainland Bridge, Lagos-Ibadan Expressway and other projects. The new sense of urgency after three years in office is fascinating to some and nauseating to others. But we say it is better late than never. The economy, businesses and the people will benefit from this born-again economic reform momentum.”

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