Inflation data dubious, lacks integrity, timeliness over non-review – Rewane … Sees MPC remaining hawkish in its September meeting

Inflation figures are currently not a true reflection of market reality, because of the outdated nature of the inflation basket and appropriateness of sampling procedure used in survey, Bismarck Rewane, Chief Executive Officer (CEO) of Financial Derivatives (FDC) Limited has said.
According to Rewane who made this known in the FDC’s bulletin on inflation weekend, Nigeria needs an updated inflation basket. He waned that policies based on flawed or incomplete information would lead to suboptimal outcomes.
“While it is true that inflation is increasing, the official data is not a true reflection of market reality. One reason for this, is the outdated nature of the inflation basket and the appropriateness of the sampling procedure used in the inflation survey.
“Ideally, the Consumer Price Index (CPI) basket should be reviewed every five years to capture changing consumption patterns. However, the Nigerian inflation basket was last reconstituted in 2009.
“Our synthetic basket shows that the average increase in the general price level is about 45 per cent. The bigger problem is that policies based on flawed or incomplete information would lead to suboptimal outcomes.
Based on this increasing inflation, he believes the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC) may remain hawkish.
“The MPC will meet on September 25-26. With inflation rising, we expect the committee to maintain its hawkish stance”, he said..
The National Bureau for Statistics (NBS) released its official inflation data weekend, saying headline inflation surged to 25.8 per cent from 24.08 per cent in July. This is the 8th consecutive monthly increase and the highest level since September 2005. A breakdown of the data showed that prices increased across board with food inflation rising to 29.34 per cent and core inflation climbing to 21.15 per cent.
In the last three months, inflation has been principally driven by naira depreciation, higher energy costs, money supply saturation, and other cost-push factors. In August, the naira touched a record low of N955/$, pushing imported food inflation to 20.46 per cent from 19.79 per cent in July. The price of diesel, a major fuel for distribution and logistics, also increased by 3.66 per cent to N850/liter, widening the rural-urban inflation gap to 3.59 per cent.
Usual suspects responsible for the rise in inflation are wheat with price increase of 43 per cent to N38,000, rice with 91 per cent increase to to N61,000, palm oil with 55 per cent increase to N31,000, sugar with 75 per cent to N42,000 and tomatoes with 82 per cent increase to N40,000.
Urban inflation at 27.69 per cent and rural at 24.1 per cent leaving a difference of 3.5 per cent from 3.34 per cent in July.
Inflation was highest in Kogi at 31.5 per cent, Lagos at 29.17 per cent and Rivers 29.06 per cent.
The rate was lowest Sokoto at 20.91 per cent, Borno at 21.77 per centand Nassarawa at 22.25 per cent.
Analysts at Afrinvest sees inflation outlook remaining bleak due to the impact of unfavorable base. they believe it would mask expected harvest haul that usually starts at September. So expects farm inflation to soften to 2.8 per cent month-on-month (m/m) but worsen to 31.1 per cent year-on-year (y/y).

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