By Babajide Komolafe
The rise in inflation rate to 12.1 per cent in March implies that  the Central Bank  of Nigeria (CBN) should persist with its tight monetary policy, says Razia Khan of Standard Chartered Bank.

“Given the level of deterioration seen in March, there will be little room for complacency.   Whilst a policy rate hike is unlikely, expect tight monetary policy to persist until we see more encouraging core inflation numbers, and the immediate threat of sustained, higher inflation has receded.”, she said in an email note.

The National Bureau of Statistics (NBS) on Wednesday reported that inflation rate, measured by the Composite Consumer Price Index “rose to 12.1 percent year-on-year in March 2012. This figure is 0.2 percentage points higher than 11.9 percent recorded in the previous month. The monthly composite CPI was higher by 1.6 percent when compared with February 2012.

“The increase in the headline index, composed of the core and food indices, partially was due to the planting season which increased the price of food products in the market, and an increase in prices in the economy. However, this was moderated by lack of liquidity in the economy due to the delay in the monthly FAAC.

“The urban inflation rate was 13.7 percent year-on-year while the rural figure was 11.0 for March 2012. The urban All Items index increased by 1.2 percent on month-on-month, while the corresponding rural index increased by 2.1 percent when compared with their preceding month.

“The percentage change in the average composite CPI for the twelve-month period ending March 2012 over the average of the CPI for the previous twelve-month period was 10.9, down slightly from the 11.0 preceding month. The corresponding 12-month year-on-year average percentage change for urban and rural indices were 9.9 and 11.8 respectively.

“In March, the level of the Composite Food Index was higher than the corresponding level a year ago by 11.8 percent. This was higher than 9.7 percent recorded in the previous month. Compared with February 2012 figure, average monthly food prices rose in March 2012 by 2.3 percent.

The rise in the food inflation was mainly due to the increasing cost of food products especially yams and other tubers as food products have become relatively scarce due to the drawdown from the end of year harvest. The average annual rate of rise of the index was 10.3 percent (year-on-year) for the twelve-month period ending March 2012.

“The “All items less Farm Produce” index which excludes the prices of volatile agricultural products rose by 15.0 percent year-on-year, while the average 12 month annual rate of rise of the index was 12.1 percent for the twelve-month period ending February 2012. On a month-on-month basis, the core index increased by 4.5 percent in March 2012. “

Market reaction

Reviewing the development, in an email note Khan who is the Regional Head of Research, Africa Global Research at Standard Chartered, said, “The market will react with some relief to the headline rate of inflation given concerns that it might have been far worse.  Nonetheless,  the finer  detail of the inflation release is still significant – we believe – for the debate on future monetary policy decisions.

“Food price inflation – a relatively benign factor in recent months – seems to have turned somewhat.  The pressure from food prices is attributed largely to the planting season, although this was offset somewhat by tight liquidity with the delays to the FAAC allocation.

“On a 12 month smoothed basis, the measure we believe is important to the CBN in determining the appropriateness or not of the current monetary policy stance, CPI inflation actually falls a touch, to 10.9 per cent year-on-year from 11per cent  in February.  This implies that the monetary policy rate of 12 per cent  is of course still positive in real terms with respect to 12 month inflation.  There is thus little need to expect any adjustment to interest rates any time soon.