The elections and the macro (no 2)

In our search for macro slippage, we devote the second of our daily notes on the run-up to the Nigerian presidential elections of April 2007, April 2011 and March 2015 to inflation. In our first note we examined total FGN spending (Good Morning Nigeria, 14 September 2018). The said fallout from elections has become the principal reason for the monetary policy committee to brush aside an easing stance. The committee’s latest communique cited the threat to inflation from a surge in pre-election spending by the governments and the candidates.

  • Food prices, given their heavy weighting in the index, tell part of the story. On a m/m basis, they contracted from October 2006 through to January 2007, and registered very small increases in both Q4 2010 and Q4 2014. We may not see this bonus ahead of the forthcoming elections in view of the clashes between farmers and herdsmen in important growing areas.
  • When we looked at FGN spending, we noted a rise in the build-up to the elections in 2011 due to the substantial increase in the national minimum wage, currently topical, approved by the National Assembly.
  • Other than benign food prices, the main reason for the containment of inflation ahead of elections has been the exchange-rate regime. In contrast to Turkey, where the regime is (close to) floating and inflation is around 25% y/y, the exchange rates in Nigeria are paying dividends in terms of the limited passthrough to prices.
Consumer price inflation (headline; y/y)

Sources: National Bureau of Statistics (NBS); FBNQuest Capital Research
  • Underpinning the regime, of course, has been a firm oil price. Bonny Light (spot) averaged US$61/b in the eight months before the 2007 polls, US$99/b in the run-up to 2011’s and US$68/b in the third eight-month period. As we approach voting next year, all the indications are that a robust oil price will again be supportive of the CBN’s exchange-rate preferences.

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