The National Bureau of Statistics released the nation’s inflation numbers for the month of May, 2016 yesterday, 14th June 2016. In line with expectations, the report indicates that the nation’s inflation rose sharply to 15.6% year-on-year from 13.7% in the month of April 2016 – a ten year high. The spate of increase was driven primarily by both the Food and the Core sub-indices of the consumer price index.
The Food sub-index increased by 14.9% year-on-year on the back of a spike in the prices of Bread & Cereal, Fish and Vegetables. Likewise, imported inflation also expanded by 18.6% year-on-year in May largely due to the continue fall in the value of the Naira.
The Core sub-index on the other hand, expanded by 15.1% year on year from 13.4% in the month of April. The 1.7% points increment was primarily driven by energy prices in the economy. Specifically, the lagged effects of the electricity tariff rise, the increased in the price of PMS (Premium Motor Spirit) which metamorphosed into a general surge in transportation cost in the country.
- The key implication of the new inflation figure is the increase in the effective cost of borrowing for businesses and individuals in the economy. This will manifest in the yields of the federal government bonds which will trend higher so as to provide adequate inflation cover for investors
- Consumer real income is further pressured which would likely translate to a further decrease in aggregate demand for goods and services in the economy
- This will possibly impact consumer facing companies the most in terms of reduced sales especially for products with cheaper substitutes
- Sadly, we expect this trend (rising inflation) to continue in the coming months as the drivers of inflation are still very imminent such as the lag effect of the recent increase in petrol, food price increase associated with the Ramadan fast and the gradual release of funds for the government’s 2016 expansionary fiscal programme.
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