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LCCI predicts double-digit inflation for 2015

By on December 30, 2014

The Lagos Chamber of Commerce and Industry says it expects the country’s inflation rate to cross the double-digit mark in the first half of 2015 as the combined austerity measures introduced by the government and tighter monetary policy of the Central Bank of Nigeria will put additional pressure on consumer prices.

In its 2014 Economic Review and Outlook for 2015 released on Sunday, the LCCI said with the unfolding oil price slump and the consequent exchange rate depreciation, it was plausible to predict higher inflation conditions for next year.

Inflation rate in the country dropped to 7.9 per cent in November, from 8.1 per cent in October, according to the National Bureau of Statistics.

“There will be pressures on production and operating costs across sectors. High cost of imports will also be a major factor. As a result of the import-dependent character of the economy, the sharp declines in exchange rate will naturally push up the operating costs of enterprises in the economy. Many firms are already feeling the heat across all sectors,” the LCCI said.

The group noted that in the past few weeks, the naira exchange rate had depreciated by about 11 per cent in the interbank market and over 12 per cent in the parallel market, adding that the impact of the depreciation on operating costs would be very profound in 2015.

It said, “A natural outcome of the depreciating exchange rate in an import-dependent economy is inflation. Cost-push inflation will begin to manifest in the next few weeks of 2015. This will be driven by high cost of production and high cost of imported finished goods.

“The tight monetary policy may continue into the 2015 and this will keep the interest rate high in the economy.”

At its last Monetary Policy Committee meeting, the Central Bank of Nigeria had decided to review upwards the Monetary Policy Rate and the Cash Reserve Ratio on private sector deposits from 12 per cent to 13 per cent; and from 15 per cent to 20 per cent, respectively.

In its review of 2014, the LCCI said the power situation in the country and activities of some government agencies, including the Federal Road Safety Corps, Nigerian Police and the agents of local governments took a heavy toll on businesses.

Noting the progress made so far on the power sector reform, particularly on the privatisation of the sector, it, however, said that the power situation continued to pose severe challenges to business operators.

The group noted, “There was an evident deterioration of public power supply in 2014. Electricity supply dropped by an average of 30 per cent in most industrial parts and households in the last six months of 2014.

“There were complaints across all sectors about high energy costs, especially high expenditure on diesel during the year. This continues to take its toll on the bottom line of investors in the economy.”

The chamber said there was a need for the Nigerian Electricity Regulatory Commission to urgently address the growing concerns over outrageous bills being sent to consumers, adding that much of the bills were not consistent with the earlier advertised billing template.

“In 2014, most firms especially the SMEs expressed concern over increases in their electricity bill. Most SMEs spend as much as 10 per cent of their monthly turnover on payment for public power supply alone. Often, these firms never get the power supply they are compelled to pay for. Again, we reiterate our position that the policy of fixed charge by electricity firms should be reviewed as it is unfair to power consumers.”

According to the LCCI, the agencies/groups whose activities have become most burdensome to businesses, logistics and delivery of goods are the FRSC, Vehicle Inspection Office, the Police, agents of local government councils and the Lagos State Traffic Management Authority.

 

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