Inflation heads for 11-year high

The National Bureau of Statistics (NBS) will this Thursday announce that Nigeria’s spiraling inflation has throttled to its highest in 11 years.

Most analysts predicted that the NBS, which is scheduled to release the July 2016 inflation rate on Thursday, August 18, will indicate inflation has risen above 17 per cent.

Analysts’ consensus, according to reports reviewed by Ripples Nigeria shows that inflation rate for July could be variously between 17.2 per cent and 17.4 per cent, the highest point in 11 years.

Analysts at Bismarck Rewane’s Financial Derivatives Company (FDC) noted that “headline inflation in Nigeria has become a hydra-headed problem that is defying therapy”.

According to FDC, while it is too soon to determine the effectiveness of the recent increase in interest rates on inflation, the picture is not looking pretty.

FDC predicts the highest inflation rate of 17.4 per cent for July noting that Nigerians are adjusting to the new realities of running inflation.

“It now looks like consumers are in for a very rough ride in the fourth quarter,” FDC stated.

The Economic Intelligence Group (EIG) of Access Bank Plc forecasts that inflation rate will accelerate to 17.2 per cent for July 2016 from 16.5 per cent posted in June 2016.

Analysts at Access Bank said the expected upward momentum in headline inflation in July reflects increases in both food and core components of inflation.

According to analysts, the food component which has the largest weighting in the inflation basket will be responsible for a substantial amount of the overall price pressure.

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The uptick in prices from items such as fish, meat, vegetables and bread on the back of higher transportation and distribution cost will push inflation rate for the month of July higher.

On the effects of the rising inflation, Access Bank stated that it will throw real returns for investors further into negative territory and there would be an uptick in yields across the curve as the market continues to price in the effect of higher inflation rate.

“Whilst it has been noted that the nation’s rising inflation is not driven by systemic liquidity but rather by structural constraints, we expect the Central Bank to continue to mop up liquidity in the system using the Open Market Operations (OMO) as observed in the month of July,” Access Bank stated.

In a preview, FSDH Merchant Bank stated that year-on-year inflation rate could rise to 17.35 per cent for the month of July, from 16.48 per cent recorded for the month of June 2016.

According to analysts, the expected increase will come from the increase in the prices of food items and other non-food items as a result of the depreciation in the value of the Naira.

“Our analysis indicates that the value of the Naira depreciated at the inter-bank market and the parallel market by 11.89 per cent and 6.63 per cent respectively in July 2016. The Naira lost N38.19 and N25.00 at the inter-bank and parallel market to close at $/N321.16 and $377 respectively as at the end of July. The depreciation recorded in the exchange rate between the two months would put further pressure on domestic prices,” FSDH Merchant Bank stated.

Analysts said the prices of food items monitored in July 2016 increased compared with June 2016 with prices of yam, onions, sweet potatoes, palm oil, vegetable oil, garri, Irish potatoes, rice and fish rising by 28.7 per cent, 17.78 per cent, 10 per cent, 8.89 per cent, 7.94 per cent, 5.56 per cent, 4.55 per cent, 3.7 per cent and 1.85 per cent respectively. The price of tomatoes however fell by 27.34 per cent while the price of beans remained unchanged.

“Our model indicates that the price movements in the consumer goods and services in July 2016 would increase the CCPI to 204.61 points, representing a month-on-month increase of 1.45 per cent. We estimate that the increase in the CCPI in July will produce an inflation rate of 17.35 per cent,” FSDH stated.

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