Hope rises for stable economy as inflation rate drops for 3rd consecutive time
Hope that Nigeria’s economy is regaining its stability emerged Tuesday as the National Bureau of Statistics (NBS) reported that the inflation rate for March 2019 dropped for the third consecutive month to 11.25%.
According to the report, year-on-year, inflation increased by 11.25% in March 2019. This is 0.06% points lower than the 11.31% rate recorded in February 2019.
In January 2019, the inflation rate increased by 11.37%, while it increased by 11.31% (year-on-year) in February 2019. Similarly, inflation increased by 11.25% in March 2019.
The drop in inflation represents 0.06% points lower than the 11.31% that was recorded in February 2019.
On a month-on-month basis, the Headline index increased increased by 0.79% in March 2019. This represents a 0.05% higher than 0.73% points recorded in the previous month.
Also, the percentage change in the average composite CPI for the twelve months period ending March 2019 was 11.40 percent, showing 0.16 percent point lower than 11.56 percent recorded in February 2019.
Rural and Urban inflation also dropped
The urban inflation rate increased by 11.54 percent (year-on-year) in March 2019 from 11.59 percent recorded in February 2019, indicating a 0.05% drop in Urban inflation. Also, rural inflation increased by 10.99 percent in March 2019 from 11.05 percent in February 2019.
On a month-on-month basis, the urban index rose by 0.81 percent in March 2019, up by 0.05 from 0.76 percent recorded in February 2019, while the rural index also rose by 0.77 percent in March 2019, up by 0.06 from 0.71 percent recorded in February 2019.
Similarly, corresponding twelve-month year-on-year average percentage change for the urban index is 11.78 percent in March 2019. This is less than 11.95 percent reported in February 2019, while the corresponding rural inflation rate in March 2019 is 11.08 percent compared to 11.23 percent recorded in February 2019.
Food index slows down
The composite food index rose by 13.45 percent in March 2019 compared to 13.47 percent in February 2019. Note that the rise in the food index was reportedly caused by increases in the prices of Bread and cereals, Meat, Fish, Potatoes, Yam and other tubers, Oils and fats, and Soft drinks, Vegetables, and Fruits.
On a month-on-month basis, the food sub-index increased by 0.88 percent in March 2019, up by 0.06 percent points from 0.82 percent recorded in February 2019.
Also, the average annual rate of change of the Food sub-index for the twelve-month period ending March 2019 was 13.42 percent, 0.20 percent points from the 13.62 percent recorded in February 2019.
What the drop in inflation means?
Inflation is calculated by obtaining the average change in prices of goods and services consumed by people on a daily, over a period of time.
Therefore, if food inflation slightly inches up, it implies that food items witnessed a quick increase in prices. However, when there is a slight drop in food inflation, it means food prices increased at a very slow rate.
It is important to bear in mind that food price spikes tend to be temporary and often the direct result of local bottleneck shortages. Excess demand over supply can also cause it.
How does this affect the prices of food items?
The drop in inflation rate for March 2019, for instance, means a slow rise in prices. It was reported that the rise in the food index was caused by increases in prices of fish, bread and cereals, Potatoes, yam, and other tubers, meat, vegetables, Oils and fats, and Fruits.
Therefore, what you should expect is not a sharp drop in prices of fish or other food items from the original prices. Also, it may slightly improve your purchasing power (ability to buy more with less) for the period.
How the economy may respond?
The drop in inflation implies that businesses revenue may slightly improve as the purchasing power of consumers rise, while this may also improve export and growth for the period under review.
Although Inflation slightly dropped in March 2019, it is still important that small businesses remain mindful of its effects. A slight increase could hurt capital expenditure and increase the cost of production for goods. Controlling inflation is seen as a healthy stimulus for the economy as a whole, but it can also be quite challenging to keep in check.
Specifically, larger corporations are generally better-positioned to bear the brunt of inflation, as it can be offset by savings generated through economies of scale. Small firms, however, often take a direct hit on margin.
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