Nigeria’s macroeconomic story for 2024 continued to unfold in May. In this edition of our monthly macroeconomic review, we spotlight April’s Consumer Price Index (CPI) & Q1:2024 GDP data from the NBS, and the outcome of the third Monetary Policy Committee (MPC) meeting in 2024.
Starting with the CPI data, headline inflation sustained its uptrend, advancing 49bps to 33.7% y/y in April. The data showed that pressure stemming from the food (up 101bps to 40.5% y/y) and core inflation (up 80bps to 26.8% y/y) sub-baskets drove the uptick. Despite the y/y increase, we observed that headline inflation rate moderated to 2.3% m/m from 3.0% in March.
We attribute the decline in the monthly inflation print to the modest appreciation in the exchange rate in the first two weeks to ₦1,072.74/$1.00 on April 17th from ₦1,309.39/$1.00 at the end of March. Consequently, monthly imported food inflation rate tempered 155bps to 2.3%. Looking ahead, we anticipate that the negative pass-through effect of the recent PMS price hike on logistics and transportation costs would weigh on inflation print for May. On the back of this, we estimate the headline inflation rate to advance to 2.4% m/m and 34.3% y/y.
In line with efforts to rein in the sticky high inflation rate, the MPC at the end of its meeting in May raised the benchmark policy rate by 150bps to 26.25%, marking a cumulative increase of 750bps since the turn of the year. Despite positively appraising the decline in m/m inflation print, the MPC opted to further tighten the MPR.
This decision was predicated on recent unfavourable FX market dynamics, energy price volatility, and uncertainty in external markets. However, we opine that raising rates alone is not a complete arsenal needed to successfully fight inflation. Solving bottlenecks such as insecurity in the food producing regions, energy price volatility, and poor infrastructure are key to achieving a lasting fix. As such, we canvass for improved synergy between the fiscal and monetary authorities to achieve a sustainable respite.
Switching gears, the recently released Q1:2024 GDP numbers showed that the economy grew by 2.98% y/y (Afrinvest projection: 2.93%) as against 2.31% in Q1:2023 but fell short of Q4:2023 print of 3.54% y/y. From a structural perspective, the Q1:2024 GDP growth was largely supported by the Services sector (up 4.3% y/y), as y/y growth in the Agriculture and Industries sectors was weak at 0.2% and 2.2% vs 2.1% and 3.9% in the preceding quarter.
Drilling down the Services sector performance, we observed that the Finance & Insurance sub-sector (up 31.2% y/y) contributed the most to the growth. This performance was not surprising given that publicly listed financial services firms reported wide scale impressive performance in the period. Looking from a broader perspective, the Q1 GDP print reflected the sustained improvement in the oil economy which only for the second time in the last fifteen quarters expanded by 5.7% owing to the improvement in average crude oil production (1.57mbpd vs 1.51mbpd in Q1:2023).
Noteworthy, the increased crude oil production is integral to the Nigerian economy, given that about 43.0% of 2024’s budgeted revenue (c.₦8.0tn) is to come from this segment. Nonetheless, more effort is required to ramp up production as current output remains short of the 1.78mbpd in the budget assumption. By and large, we hold on to our 3.0% growth projection for 2024. Our conservative position is hinged on the challenges that continue to impact the business environment, such as insecurity and exchange rate volatility.
Afrinvest
