Inflationary pressure gains momentum

Nigeria’s inflation rate for February increased significantly to 11.40 percent year-on-year (yoy) from 9.60 percent recorded in the previous month heralding the movement of the nation’s inflation rate into the double-digit range.

Dunn Loren Merrifield research analysts said ahead of the MPC meeting in the coming week that, “we recommend the adoption of policy measures to address exchange rate stability concerns as we believe this is crucial to easing some degree of inflationary pressures.”

The faster pace of increases which led to the overall increase in the headline index were recorded across almost all major divisions which contribute to the Headline index with the exception of the Restaurants and Hotels division which increased, albeit at a slower pace.

After increasing at the same pace for two months, the pace of increases of food prices as recorded by the Food sub-index increased at faster pace in February. The Food index increased by 11.3percent, up by 0.71percent points from rates recorded in January.

“Whilst we are aware of the fact that mounting inflationary pressures might necessitate a decision to increase the monetary policy rate, we however uphold our view on the need to maintain lower interest rates within the economy.  Therefore, we believe that rates are most likely to remain on hold as this is crucial to stimulating national output growth”, the analysts added.

The analysts who recommend that benchmark rate should remain on hold noted that inflationary pressure is gaining momentum as expected “mainly due to the lag effects of the exchange rate volatility seen in recent months and the resurgence of momentary factors which had earlier been subdued”.

“We are inclined to highlight that current rate significantly exceeded expectations. This in our view challenges the committee’s resolve to maintain price stability given that the space for manoeuvre remains largely constrained”, Dunn Loren Merrifield research analysts further added.