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New tariffs on vehicles, rice will increase inflation — LCCI

By on January 7, 2014

Nigerians should expect a higher inflation rate this year, possibly double digit, as new trade policies take effect.

The policies include the recent upward review of the tariff on imported vehicles and rice, which will translate to general increase in the prices of goods and services.

The Lagos Chamber of Commerce and Industry, which stated these in its ‘2014 Economic and Business Outlook’ released on Sunday, stressed that “inflationary pressures might intensify this year as a result of a number of factors impacting the supply side of the economy.”

The LCCI listed the other factors that would put pressure on prices as exchange rate depreciation in the parallel market; high transportation cost; high energy cost; high cost of funds; the proposal to ban fish importation and deregulation of the downstream oil sector if the Petroleum Industry Bill is passed.

Advising businesses to expect a moderate inflation risk, the chamber said, “It will be difficult to keep inflation within single digit in 2014 given the various variables that would generate pressures on prices.”

Inflation rate in the country has remained within a single digit in the last one year, and stood at 7.9 per cent in November 2013, according to figures from the National Bureau of Statistics.

According to the LCCI, pre-election activities may affect the economy through distractions of partisan politics and heightened election spending.

It, however, said the resilience of the economy would endure the developments.

The Chamber, like other industry analysts, also said the naira exchange rate would likely experience a drop in value this year due to the current pressure on the foreign exchange market.

It said, “The naira will experience a moderate depreciation given the current pressure on the foreign exchange market and the increasing divergence between the parallel market rate and the official rate.

“The mounting pressures on foreign reserves and Excess Crude Account are indicative of this. These developments will also fuel speculative activities and round-tripping in the foreign exchange market.

“A moderate depreciation is expected and this is already envisaged in the Medium Term Expenditure Framework and the budget, where the exchange rate assumption is N160 to the dollar. Business model of investors in 2014 should, therefore, make an appropriate allowance for a moderate depreciation in the naira exchange rate.”

The LCCI, however, quoted the International Monetary Fund as saying that the outlook for the global economy for this year was good with a projected improvement in growth from 2.9 per cent in 2013 to 3.6 per cent in 2014.

According to the chamber, the eurozone economies have pulled out from recession and are now on a positive growth trajectory for 2014.

The United States economy, the largest in the world, is expected to sustain its recovery path with a growth of 2.6 per cent from 1.6 per cent in 2013.

The economies of sub-Sahara African countries, according to the LCCI, are projected to post an impressive average of six per cent growth as against five per cent in 2013.

Emerging economies will maintain a positive growth trend of 5.1 per cent, although some of the economies may experience slower growth rate.

It said, “Overall, the outlook for the global economy looks good and this will impact on commodity prices, especially crude oil. Oil prices are likely to be steady at around $100, which will be good for the Nigerian economy.

“The Nigerian economy in 2014 will be characterised largely by macroeconomic and investment climate conditions that prevailed in 2013.”

[Punch]