Untamed food prices dash hopes of Central Bank’s rate cut
• Inflation shoots up to 11.6% over rising prices
Any remaining hopes of an interest rate cut by the Central Bank of Nigeria (CBN) in the near term have been quashed by signs of rising inflationary pressures, which touched a 17-month high of 11.61 per cent, over unending food prices.
Higher food prices, according to data from the National Bureau of Statistics (NBS), pushed up the yearly inflation for October, after the country’s land border crackdown on smugglers, which led to complete shutdown.
The move, which prevented the inflow of food items from the borders since August, sustained rising yearly inflation numbers to 11.61 per cent in October, up from 11.24 per cent in September.
The inflationary pressure, which came as the highest rate since May 2018, had taken significant upward movement since September when it rose to 11.24 per cent from 11.02 per cent in August.
A Senior Research Analyst at FXTM, Lukman Otunuga, said it is now clearer that CBN is unlikely to cut interest rates from 13.5 per cent at its policy meeting this month.
According to him, due to the uptick in inflation, the sentiment against interest rate cut now is likely to roll over into 2020.
“Although one of the apex bank’s objectives is to achieve price stability, an interest rate cut has the potential to stimulate consumption, which accounts for roughly 80 per cent of Gross Domestic Product (GDP).
“Given how the Federal Reserve has signalled a pause on further rate cuts, this may complicate the CBN’s efforts to ease monetary policy in 2020.
“The next major economic release from Nigeria will be the third-quarter GDP figures, scheduled for November 25. Markets are predicting growth to expand by two per cent. Should the report disappoint, the CBN could be forced to take action despite the threat of rising inflation,” he said.
A separate food price index showed inflation at 14.09 per cent in October, compared with 13.51 per cent a month earlier.
The rise in the food index was caused by increases in prices of meat, oils and fats, bread and cereals, potatoes, ham and other tubers, fish and vegetables. “The rise in food inflation does suggest that border closures may have played a part in temporarily pressuring prices higher,” said Razia Khan.
Khan, a Chief Economist for Africa and the Middle East, Standard Chartered, observed that the rise in food inflation suggests that border closures may have played a part in temporarily pressuring prices.
“Given the increase in inflation, we now expect that policymakers will leave their key rate on hold,” a Senior Emerging Markets Economist at Capital Economics, John Ashbourne, added.
While the Federal Government had hinted of opening the borders by January 2020, despite the general impact on the nation and the neighbouring countries, this has been hinged on the ratification of the proposed mutual anti-smuggling rules set by Nigeria.
Already, the country’s authorities have been reeling out gains of the land borders closure, despite its implications on the general prices of goods and services, particularly, food items.
CBN Governor, Godwin Emefiele, has noted that rice and poultry farmers in Nigeria have experienced respite with reduced smuggling, as their farming communities are full of activities now, while their warehouses are cleared of inventory backlogs.