INFLATION: MONEY SUPPLY RISES 22.5% TO N38TRN

 In Investor News

The increasing demand for cash by members of the public to meet the rising prices of goods and services has caused money supply in the economy to jump by 22.5 per cent Year-on-Year (YoY)  to N38 Trillion in the first quarter of the year (Q1’21). Reflecting the rising trend in prices of goods and services, the annual inflation rate rose for the 19th consecutive month to 18.17 percent   in March according to data by the National Bureau of Statistics (NBS). This represents the highest inflation rate since January 2017.

The persistent rise in the inflation rate is mostly attributed to increase in food prices. The annual food inflation rate rose steadily to 23 per cent in March this year from 13.28 per cent in October 2018, reflecting the impact of low harvest due to continued farmer-herders’ crises and the volatility in logistics cost as well as the impact of border closure that lasted from August 2019 to December 2020

Other factors driving the steady increase in prices of goods and services include: Naira depreciation, increase in pump price of petroleum products and electricity tariff. However, the persistent increase in inflation means that consumers need   more money to purchase the same quantity of goods and services, a situation that usually leads to increased demand for money and hence increase in money supply.

In April, we are estimating a further increase of 0.6% to 18.77%, after 19 months of consecutive increases said analysts at Financial Derivatives Company (FDC) Limited. “All inflation sub-indices except for the month-on-month index are expected to follow a similar trend with the headline inflation.

“The monthly consumer price level is projected to slide by 0.03% to 1.53% (19.95% annualised) in April from 1.56% (20.40% annualised) in March. “This is largely due to weak aggregate demand, resulting from reduced consumer disposable income.” Similarly, Mosope Arubayi and Ibukun Omoyeni, analysts at Vetiva Capital Management, projected further increase in inflation rate to 18.92 per cent. Explaining the basis for their projections, they said: “With respect to energy prices, we recall PMS prices were adjusted downwards in April 2020, in line with deregulation efforts as oil prices plummeted to low levels and consequently created a low base for core prices. “However, according to recent news reports, the Federal Government could bear the cost of subsidies for the next six months, even as oil prices remain at pre-pandemic levels.

“Despite this clarification, we expect the low-base effect to drive inflation higher in the current month, informing our expectations of 18.92% y/y in April. Thus, we raise our average headline inflation forecast to 19.04% for 2021 (2020: 13.21% y/y). “Customary with Easter and Ramadan festivities is the rise in inflation expectations. While prices may revert to earlier levels, the seasonal rise in prices could contribute to higher food inflation.

 

Read more at: https://www.vanguardngr.com/2021/05/inflation-money-supply-rises-22-5-to-n38trn/

Recent Posts

Leave a Comment

Contact Us

Please send us a mail. We'll respond to you shortly.

Not readable? Change text. captcha txt

Start typing and press Enter to search