Don't Miss

FDC: Nigeria to Record 10-12% Inflation in 2015

By BusinessNews Staff on January 12, 2015

Amidst the crisis triggered by the plunge in crude oil prices and the corresponding pressure on the naira, analysts from the financial and investment advisory firm, Financial Derivatives Company, have put Nigeria’s inflation figure at 10-12 per cent this year.

The research company, in a special publication last week titled: ‘2015 Election: It’s the Economy, Stupid,’ said although inflation stood within a single digit band for most part of 2014, a number of local and international economic developments will push Nigeria’s inflation to a new threshold in 2015.

Current inflation figure, according to the National Bureau of Statistics is 7.9 per cent, but FDC said considering the sustained turbulence in global economy, Nigeria cannot but record a marginal increase in its inflation figure for the year.
The report said factors like the recent increase in electricity tariff, 15 per cent naira devaluation, a new regime of import duty on imported cars, likely pressure for wage increase, and fall in global oil prices, among others will set the stage for the anticipated marginal rise in inflation this year.

According to the report signed by its Managing Director, Mr. Bismarck Rewane, the planned increase in electricity tariff, which is expected to take effect in the first quarter of the year, is one of the factors that will lead to cost of living in the country.

Nigerian Electricity Regulatory Commission (NERC) had on December 23, 2014 approved the review of the Multi Year Tariff Order (MYTO) 2.1 regime with take-off date of January 1 for commercial consumers.

Meanwhile NERC said the review was not expected to bring about any increase in tariff to residential customers on R2, who formed 80 per cent of electricity consumers, till June. The additional cost of electricity, it is argued, will reflect in goods and services with a corresponding rise in prices.

The report also explained that the 15 per cent devaluation of naira will begin to reflect in the economy in the first quarter of the year, saying Nigerians should brace for higher inflation. Analysts said as the devaluation continues to manifest in prices of goods and services, Nigeria will not be able to maintain the single digit inflation figure.

Another government policy which is bound to increase cost of living, according to Financial Derivatives, is the 70 per cent duty slammed on imported cars. Already, importers and auto dealers have expressed the fear that the measure which becomes operative as from the end of the first quarter would put prices of vehicles beyond the reach of ordinary Nigerians.

The report said it won’t be a surprise if the organised labour begins to mount pressure for wage review to reflect the rising cost of living.

Perhaps, one factor that will have a far reaching effect on the economy is the lower global commodity prices and the attendant erosion of the nation’s external reserves. The Federal Government has announced a set of austerity measures which FDC believed will bring about some negative consequences as spending is billed to be curtailed. The development, the report said, will also lead to 10 per cent decline in prices of petrol and diesel.

Nigeria’s annual inflation rate eased for the third straight month to 7.9 per cent in November of 2014, slightly down from 8.1 percent in the previous month due to lower food prices.

Year-on-year, food prices rose 9.1, following a 9.3 percent increase in October.
While the majority of groups that contribute to the food index declined, price increases were observed for vegetables, coffee, tea and cocoa. Meat increased at roughly the same pace relative to October.

Cost of housing, water, electricity, gas and other fuels increased 5.89 percent (6.1 per cent in October); transport prices rose 6.59 per cent (6.7 percent in the previous month) and education cost advanced 6.6 per cent, the same rate recorded a month earlier.

On a month-on-month basis, consumer prices grew 0.59 percent in November, up from 0.51 percent in October. Food prices increased by 0.6 percent in November, after reaching the year’s low in October (0.5 percent). The highest price increases were recorded for coffee, tea, cocoa, fish, meat and fruit.

The core index, which excludes prices of volatile agricultural products, increased at the same pace (6.3 percent year-on-year) for the fourth consecutive month in November. The increase was mainly due to higher prices of fuels, non-durable goods and transport.

Inflation Rate in Nigeria averaged 12.31 percent from 1996 until 2014, reaching an all-time high of 47.56 percent in January of 1996 and a record low of -2.49 percent in January of 2000. In Nigeria, the Consumer Price Index (CPI) measures the change over time in prices of 740 goods and services consumed by people for day-to-day living.

The index weights are based on expenditures of both urban and rural household in the 36 states. The most important categories in the CPI are Food and Non Alcoholic Beverages (51.8 percent of total weight); Housing, Water, Electricity, Gas and Other fuel (16.7 percent) and Clothing and Footwear (7.7 percent).

Transports account for 6.5 percent of total index and Furnishings and Household Equipment Maintenance for 5 percent. Education represents 3.9 percent of total weight, Health 3 percent, Miscellaneous Goods and Services 1.7 percent and Restaurants and Hotels 1.2 percent. Alcoholic Beverages, Tobacco and Kola account for 1.1 percent of total index, Communications for 0.7 percent and Recreation and Culture for the remaining 0.7 percent.

[ThisDay]

headline