By Babajide Komolafe
National Bureau of Statistics, yesterday, announced that inflation rate rose to 12.5 per cent in April, from 11.8 per cent in March after slowing in the two previous months.
Inflation is a general increase in price of goods and services, and the inflation rate measures the rate at which prices increases.
The increase in inflation, according to the Bureau, is driven by increased prices of food items.
Food inflation quickened to 14.3 per cent from 13.5 per cent, it said in a statement issued in Abuja yesterday.
The rise in inflation confirms the concerns expressed by the Central Bank of Nigeria (CBN) in its last Monetary Policy Committee (MPC) meeting.
The Committee in its communiquÃ©s stated â€œThe Committee restated its earlier position that the threat of inflationary pressure in the near-to-medium term remains real given the expansionary stance of the 2010 Federal Government budget and the anticipated increase in spending usually associated with the run-up to election across the country.
â€œIn this regard, the MPC confirmed that it will continue to monitor price developments in the months ahead with a view to ensuring that the downside risk of inflation to growth is minimized.â€
Commenting, Razia Khan of Standard Chartered Bank said â€œThe rise in Nigerian inflation to 12.5 per cent in April from 11.8 per cent in March is a worry in the context of continued easy monetary policy, and the looming inflation risks ahead, but it is unlikely to signal any change in policy rates just yet.â€
In a email commentary note, she said â€œGoing forward, however, whatever the short term dispute around arrears and the delay to the FAAC allocation currently pressuring liquidity in Nigerian money markets – Â the amount of government spending envisaged does pose considerable risks to the likely inflation profile.
â€œIn the absence of reforms that might help the Nigerian economy overcome some of its structural rigidities, any further substantial rise in monetary aggregates poses some risk to prices, even given the backdrop of still-weak demand.
â€œRather than react by increasing policy rates – the effect of which would be somewhat questionable – we believe there is room to allow for gradual NGN appreciation to rein in any future price pressures.
â€œGiven that banks are in aggregate still flush with liquidity, the transmission mechanism of Naira (NGN) appreciation is likely to be more effective than conventional interest rate policy in containing future inflation.â€