Experts have mixed expectations regarding February’s inflation rate, with some predicting a slight moderation or stability, while others foresee a marginal increase.
However, no sharp decline is expected.
While some experts anticipate a decline in the month-on-month (m/m) inflation rate, there is, however, no clear consensus on the year-on-year (y/y) outlook.
The year-on-year inflation rate remains uncertain due to factors such as fuel price reductions, foreign exchange stability, and the impact of food supply shortages during the fasting period.
Although analysts point to the recently rebased Consumer Price Index (CPI) as a source of uncertainty in inflation projections, concerns have been raised regarding the methodology used by the Nigeria Bureau of Statistics (NBS) to determine the rebased CPI, further complicating precise estimates.
Expert opinions on inflation trends
The Managing Director of Arthur Steven Asset Management Asset, Mr Olarunde Amolegbe, noted that, “My expectation is that Inflation is probably going to come in flat or show a slight increase. Though we saw a reduction in fuel prices last month, this does not appear to have an impact on the shelf price of other items. There was also an improvement in FX stability and prices, all it did was slow the rate of inflation rather than cause it to drop.”
- The Head of Research at Afrinvest West Africa, Damilare Asimiyu, estimated that the m/m headline, food, and core inflation rates would hedge lower to about 3.6%, 3.9%, and 2.8% respectively from 10.7%, 10.3%, and 10.9% in January as the sharp rebasing effect begins to diminish on the m/m reading.
“Although 70% of our modelled scenarios suggests that y/y reading too should decline below 24.7% recorded in January in a base case, lack of clarity on how NBS arrived at the rebased CPIs for January 2024 (88.9, 87.5, and 90.4 for all items, food, and core inflation index sequentially) without any indication of what the rebased indices for the rest of the months are (February to November), clouds precise estimation of the base period. Hence, precision on the y/y reading is challenging.
“As per our expectation for the m/m, the reading is anchored on mixed price movements in the month – PMS price fell but limited supplies of some food items ahead of fasting (especially grains like beans) – pressured prices higher.”
- As for Norrenberger Head of Research, Samuel Oyekanmi, he stated, “I expect it to moderate slightly from the January figure. Factors like: Stable FX, Decline in petrol prices (at least from the Dangote marketers), improved food supply for some of the consumables.”
Factors that would contribute to inflation outcome for the month
- Decline in petrol prices: Dangote Petroleum Refinery reduced its ex-depot PMS price twice in February, dropping from N950 to N890 and later to N825 per liter. Following suit, the Nigerian National Petroleum Company Limited (NNPCL) also reduced its pump prices, potentially easing inflationary pressure.
- Food prices: Some essential food items saw price reductions, with improved supply in certain consumables. Nairametrics conducted a physical market survey in February and the data supported this. However, food supply shortages due to the fasting period could push prices higher.
The government has committed to increasing food production and supply. During the month, the Minister of Information and National Orientation, Mohammed Idris, stated that the Federal Government is commited to lowering the cost of food commodities through massive investments in agricultural production rather than taking control measures.
- Foreign Exchange Stability: The naira remained relatively stable in February, fluctuating between N1,500/$ and N1,540/$ in both the parallel and official markets.
By the month’s end, the naira appreciated against major currencies as reported by Nairametrics, strengthening to N1,540/$ from N1,620/$ (7.41% appreciation), N1,910/£ from N2,000/£ (4.50% gain), and N1,550/€ from N1,660/€ (6.34% gain).
What to expect in March
Prices of essential food items are decreasing in the market, also prices of imported food items are dropping due to naira stability.
- Nairametrics conducted a market survey this week, which revealed that there is a reduction in prices of beans, rice, potatoes, onions, except for pepper.
However, shortage in food supply may drive prices up again.
- Dangote Refinery’s price reductions may stabilize fuel costs at N860 to N900. Notwithstanding, an end to the ongoing price competition between Dangote Refinery and NNPCL could push fuel prices above N1,000. This was the remark by the Chief Economist at the SBM Professionals, Dr. Paul Alaje in a conversation with Nairametrics.
- As observed by Nairametrics from its data trend, the recent stability of the naira may be short-lived, as early March trends indicate a weakening currency, which could lead to higher import costs and increased inflation.
