Drop in inflation: Any positive effect on commodity prices?

For the 16th consecutive time, the country’s inflation decreased to 11.4 per cent in May, this year, the lowest since 2016.
However, it has been shown that this has not effectively impacted on prices of commodities to the advantage of consumers; BENJAMIN UMUTEME takes a very close look at the scenario.
Nigeria’s inflation rate decreased to 11.6 per cent in May of 2018 about 0.82 per cent decline from the 12.48 per cent recorded in April and slightly above market expectations of 11.4 per cent.
It was the lowest inflation rate since February of 2016, as prices of food & non-alcoholic beverages, housing & utilities, clothing & footwear and transport grew at a slower pace.
The decline in inflation was primarily driven by a high May 2017 base (m/m inflation: 1.9 per cent) as m/m inflation in May 2018 actually rose to 1.1 per cent from 0.8 per cent in April – the highest m/m inflation since July 2017.
Across sub-indices, Core inflation declined slightly on yearly basis- from 10.9 per cent to 10.7 per cent, but rose on monthly basis – from 0.9 per cent to 1.0 per cent.
Food Inflation also declined y/y – from 14.8 per cent to 13.4 per cent, – but jumped m/m from 0.9 per cent to 1.3 per cent.
Given the rise in m/m inflation, the moderation in annual core and food inflation was as a result of aforementioned base effects.
The Central Bank of Nigeria (CBN) Governor, Mr.
Godwin Emefiele, had said last year during the apex bank’s economic forecast for 2018 that it was expecting a “very low double-digit or high single-digit levels this year, barring any external shocks.” Price of food and fuel had skyrocketed in 2016 due to the fall in international oil prices as well as a weaker currency that raised prices of imported goods in the country.
But over the past few months through innovative foreign exchange management, restriction on certain food imports like rice and Nigeria’s improved oil production and supply the CBN has been able to stabilise the economy.
But has much really changed in high prices of goods and services? Persistent price increase However, many Nigerians have questioned the figures released by the Statistics Bureau, saying that it seem not to reflect the realities on ground.
For the average Nigerian, inflation figures can truly said to have fallen when it is seen in reduction of food and services prices.
The monthly increase in food inflation persisted for the fourth consecutive month in May aggravated by farmers, herders’ clashes across the Middle Belt region of the country, and persistent Boko Haram attacks on farming communities in the Northeast.
The National Bureau of Statistics (NBS), in its Inflation Report for May Composite Food Index, rose Month-on-Month to 1.33 per cent in May from 0.91 per cent in April, representing the fourth consecutive monthly increase in food inflation.
The NBS disclosed that on month-on-month basis, however, Taraba, Adamawa and Enugu were States with the highest food inflation during the month with 2.80, 2.38 and 2.36 per cent respective, while Kogi, Oyo and Ekiti all recorded negative food price inflation during the month This is in line with projections by experts that the country risks further decline in food supply, which could lead to upsurge in food prices if the herdsmen, farmers’ clashes across the country remain unchecked.
According to ‘mama Udo, as she is fondly called by neighbours at Nyanya market, she is yet to understand the criteria used to measure the inflation rate.
Speaking in Pidgin English, she said: “My brother, if wetin you xplain to me be inflation then price of things don suppose come down.
We still dey sell mudu of garri for N150 and mudu of rice for N650, so how inflation take come down,” she asked.
This expectation stems from the understanding that inflation means sigh prices for goods and services and, therefore, a reduction in inflation (deflation) should also result in fall in prices, especially of foodstuff.
There is a misunderstanding of the fact that inflation rise or drop is not a function of food prices alone; it is an average aggregate price of a basket of things.
So, while the prices of other items in the basket may have been coming down, it appears food prices are not crashing.
For Prof.
Anthony MonyeEmina, “the production of food crops is not going smoothly in some farming communities because of the displacement of farmers which is not just peculiar to the North-east.” “So, the shortage of supply of food foodstuffs is the primary reason” for food price increase,” he said.
Corroborating Prof.
Emina, analysts at Vetiva Research said: “In terms of food prices, we point to the ongoing violence in the middle belt and the reported disruption of farming activities as a likely driver.
We are concerned that the uptick in food price pressure is here to stay and revise our inflation expectations in line with this view.” While the federal government is consoling itself that inflation figures have gone down considerably, citizens remain upbeat as it many say they continue to lay more for goods and services.
Normally, the advent of rainy season is seen as a period where prices of food fall across board, but many are of the opinion that 2018 may be different as growing insecurity is driving people away from the farm.
Also, increases were recorded in prices of hairdressing saloons and personal grooming establishment, vehicle spare parts, fuels and lubricants for transport equipment, books and stationery, domestic services and household services, pharmaceutical products, paramedical services, medical services and passenger transport by road.
Okechukwu Michael is an engineer working with a construction company in Abuja.
He said: “I don’t know they conduct their survey but one thing I know that is certain is that prices of goods and services are still high.
Two weeks ago, my barber of over three years suddenly increased the price of a haircut to three hundred naira after persistently complaining that he was the only one among his colleagues charging the lowest rate.
“Also, the price of maintaining my car has increased drastically.
Just last week, a colleague in my office lost his car battery to thieves and he had to painfully cough out over N30, 000 to get a new one.
This was a battery we use to buy for as low as between N10-N12, 000 three years ago.
Possible solution Speaking with Blueprint, Friday Efih, an economist, warned that except the government comes down from its high horses and quickly addresses the persistent attacks on farming communities by herdsmen and insurgents (Boko Haram), food prices will eventually hit the roof tops.
He said: “How long will it take the government to realise that these attacks in the North east and the Middle Belt region of the country is gradually heading to a situation where ‘food insecurity’ will set in.
If this continues, in the next two years, there might not be enough food for Nigerians and the ‘return to farm’ campaign by the government may just be one of sound that signifies nothing.” He further explained that the present exchange rate regime will still make it difficult for the prices of food to drop.
“It will be difficult considering that most of what we consume in the country is imported.
And even when they are produced in the country, running cost and others will still make it difficult for the product to be sold at an affordable price.
Take for instance, in spite of all the talk about the increase in local production of rice, it is still not as cheap imported rice prerecession period when it was sold at N8,000,” he said.
Currently, 50kg of Nigerian Rice sells for about N16, 000.
Analysts believe that except Nigeria begins to manufacture the majority of what it consumes, hopes of prices of goods and services dropping like inflation figures would continue to be a mirage.