Nigeria’s economy faces stagflation, says FDC

Nigeria, Africa’s biggest economy, is facing the prospect of stagflation, the Financial Derivatives Company has said, as inflation rate rose for eight straight months amid the economic fallout from the COVID-19 pandemic.

An economy is said to be experiencing stagflation when persistently high inflation combines with high unemployment and stagnant demand or low economic growth.

The country’s inflation rate increased to 12.34 percent in April from 12.26 percent the previous month, the National Bureau of Statistics said on Thursday.  

“This is the highest level since April 2018. Whilst the uptick in inflation was expected, the rate of change was much lower than anticipated,” FDC analysts, led by Mr Bismarck Rewane, said in a new report.

They said the lower-than-expected rate of change might be because the sample size of the market survey during the period might not be a true reflection of current market realities.

“The social distancing protocols could distort prices and increase the margin of error. Nonetheless, the inflationary impact of the lockdown and movement restrictions (Lagos, Ogun and Abuja) and panic buying by consumers is taking its toll,” the analysts added.

The Monetary Policy Committee of the Central Bank of Nigeria is scheduled to hold its third meeting of the year next Thursday.

FDC analysts said the front burner issues at the meeting would be how to maintain price stability in a COVID-19 situation, weak external position and slowing growth.

According to them, inflationary pressures are expected to persist in the coming months due to the combined effects of shortages and rising imported inflation as a result of the currency weakness.

They said, “The most rationale decision to take by the MPC in the current market reality is to maintain status quo on all monetary parameters while evaluating the impact of excess liquidity in the market from intervention funds released.

“Technically speaking, Nigeria is facing a stagflation scenario – rising inflation, slow growth and rising unemployment. Addressing these challenges will prove a herculean task for the policymakers who are preoccupied with the COVID-19 response.”