How insecurity induces high prices of food items

• May hamper interest rate cut, alter CBN’s T-bills pricing
Nigeria’s inflation rate recorded a second consecutive increase at 11.40 per cent in May 2019, following a surge in food prices across the country.

The composite food index rose by 13.79 per cent in May 2019, compared to 13.70 per cent in April 2019, led by increase in prices of meat, oils and fats, bread and cereals, potatoes, yam and other tubers, fish, milk, cheese and egg, and vegetables.

The development, despite seasonal factors like farming period, was worsened by the recurring insecurity in the nation’s food belts. The north central and north east states are agrarian centres that produce most of the staple foods consumed in the country.

Prices have continued to soar, spiking inflation rates on a monthly basis. According to the National Bureau of Statistics, the consumer price index increased by 0.03 per cent in May 2019, higher than the rate recorded in April 2019 (11.37 per cent).

There were increases recorded across individual consumption expenditures incurred by households, non-profit institutions serving households and general government activities.

Month-on-month basis, the food sub-index increased by 1.41 per cent in May 2019, up by 0.27 per cent from 1.14 per cent recorded in April 2019. The average annual rate of change of the food sub-index for the 12-month period ending May 2019 over the previous 12-month average was 13.37 per cent, against 13.34 per cent in April 2019.

The Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane, said while the inflation rate was relatively high, its monthly increment at 0.03 per cent was negligible. He said the challenge was about rise in inflation with flat or no growth, and that food inflation was only a symptom of the economic shortfall, which must be fixed with strategic plans that would get the private sector actively engaged.

“Even if the inflation rises to 12.3 per cent or more, but is accompanied with high growth of five or six per cent, it is still acceptable and nobody will feel it. There is need for government to incentivise the private sector so that it can contribute meaningfully. There are things that need to be done, especially in terms of power and supply constraints. We need to boost growth. We need investments, but government does not invest. Only the private sector does. They only need to incentivise the private sector,” said Rewane.

A research analyst at FXTM, Lukman Otunuga, said the development stokes fears, given the current weak oil prices, the imminent policy meeting of the Federal Reserve Bank and ongoing trade tensions.“The latest inflation figures may fuel concerns over pressures creeping back into the economy. Should consumer prices continue to accelerate in the coming months, this could force CBN to maintain status quo on interest rate,” he warned.

The Head of Research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, put the company’s forecast at 11.39 per cent, with the major driver being the increase recorded in the food index.“This is in line with the historical trend driven by the commencement of rain and planting seasons. Also, the rising security challenges in recent weeks in Nigeria have added to the escalating food prices.

“We believe the CBN might not increase the policy rates to curb the rising inflation rate. However, it might raise the treasury Bill (T-bills) rates at the secondary market to mop up liquidity from the financial market until inflation rate begins to go down,” he noted.

The Managing Director of Cowry Asset Management Limited, Johnson Chukwu, told The Guardian that CBN had hinted on the increase in inflation at the last Monetary Policy Committee meetings, but stressed that the inflationary pressure might be longer than projected by the apex bank.

“Of course, this rising inflation era might be sustained for the next couple of months, given that the implementation of the minimum wage would soon start, which will have additional pressure on inflation. The budget has just been signed into law, with no implementation yet, leaving no injection of money into the economy. So, activities are still delayed,” he said.

According to him, what the economy needs currently are activities that would increase employment and create wealth, not obstructions and uncertainties.

All items inflation, year-on-year, was highest in Kebbi State (15.76 per cent), Bauchi (14.97 per cent) and Kaduna (13.74 per cent). On the other hand, Abia (9.91 per cent), Cross River (9.68 per cent) and Kwara (8.45 per cent) recorded the slowest rise in headline inflation.

Month-on-month, in May 2019, all items inflation was highest in Bauchi (1.76 per cent), Gombe (1.69 per cent) and Niger (1.65 per cent), while Kogi (0.59 per cent) and Benue (0.48 per cent) recorded the slowest rise. Kwara witnessed food price deflation or negative inflation.

Food inflation, year-on-year, in the period under review was highest in Kaduna (17.10 per cent), Kebbi (18.90 per cent) and Gombe (16.90 per cent), while Kogi (11.80 per cent), Rivers (11.70 per cent) and Abia (10.90 per cent) recorded the slowest rise.

Month-on-month, food inflation was highest in Kano (2.39 per cent), Gombe (2.33 per cent) and Kaduna (2.27 per cent). Kogi (0.68) and Benue (0.24 per cent) recorded the slowest rise, with Kwara having food price deflation or general decrease in the general price level of goods and services.