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Analysts predict 8.7% inflation

By on August 16, 2013

Analysts at the Financial Derivatives Company (FDC) Limited predicted inflation rate of 8.7 per cent for July. “Our forecast for Nigeria’s headline inflation in July indicated a 0.37 per cent increase to 8.77 per cent (±0.22%) from June’s 8.4 per cent”, they said in the FDC Economic Bulletin for August.

This implies that consumers paid more for goods and services in July than in June. In June the inflation rate dropped to 8.4 per cent, from 9.0 per cent in May.  FDC analysts however maintained that slow movement in the base period prices and increase in imported inflation due to deprecation of the naira in July, caused inflation to rise slightly during the month.

The company anchored its prediction on the outcome of its inflation survey in Lagos, which indicted rise in inflation in the state.

The report said, “According to our Lagos urban inflation survey in July, consumers paid slightly higher for some goods and services compared to June. Urban consumer prices increased 0.76% for the second consecutive month in July to 11.57% from June’s 10.81% due to increased planting activities and supply shortfalls. The increased prices were mainly on food items while the cost of most non-food items remained flat.

“Food prices rose by 0.91% to 13.07% in July from 12.16% in June. Notable changes in the index are evident in the higher prices of guinea corn, yam and cereals. Overall, non-food prices rose by 0.14% to 8.71% from the previous month as the cost of air travel in-creased due to frequent travel in the summer season, and higher priceof some building materials due to increased construction.”

Further rise inflation as predicted by the FDC would strengthen the argument for maintenance of tight monetary policy by the Central Bank of Nigeria.  At the monetary policy committee (MPC) meeting of the apex bank held last month, the CBN further tighten money supply by increasing cash reserve ratio (CRR) on banks’ public sector deposit.  According to the CBN, though inflation dropped to 8.4 per cent in June, government spending and excess liquidity in the banking system poses major risks to future inflation rate.

The CBN said, “Notwithstanding the moderation in headline inflation, there are benign risks on the horizon, including the possibility of accelerated fiscal releases in the later part of the year and the effects of the upward review in electricity tariffs in line with the Multi-Year Tariff Order (MYTO) following the implementation of the full deregulation of the energy sector.