The nation’s inflation rate for December 2015 is expected to nudge further to 9.5 per cent, the highest level since February 2013, analysts at Financial Derivatives Company Limited have said.

The inflation rate for November stood at 9.4 per cent, up from 9.3 per cent in October, according to the National Bureau of Statistics.

In its latest Economic Bulletin entitled ‘The Spectre of High Inflation Haunts Nigeria,’ the FDC said it was projecting a headline inflation of 9.5 per cent for December 2015, adding that this would rank Nigeria as the country with the 12th highest inflation rate in Africa.

The FDC economic team said, “The 0.1 per cent increase estimated in the consumer price index is consistent with the moderate uptick recorded between November and December in both 2013 and 2014.

“It will be the highest level since February 2013. Inflation rate increased nine times out of the 12 months in 2015. Is this rising inflationary trend transient or structural? Though the inflation rate may not be totally transient, a consistent but transient trend becomes self-fulfilling over time.”

According to the analysts, the major factors contributing towards the rising price level in 2015 are cost-push in nature. These factors include exchange rate pressure, intermittent fuel scarcity, policy uncertainty and trade restrictions.

“In December, the naira depreciated significantly in the parallel market to an all-time low of N280/$, further compounding shortages of imported products. Increased demand due to seasonal festivities resulted in higher food prices.

“Furthermore, the fuel scarcity that spilled over from November led to a spike in transport fares. The full effect of the cost-push factors has been muted by the decrease in money supply growth (annualised) of -5 per cent and a reduction in the price of diesel to N107.

On inflation outlook for 2016, the analysts said with government spending expected to increase in January/February, money supply would also expand, adding that consumption pattern in January would most likely be driven by market anticipation.

“Inflation expectations in the first quarter will be a function of disbursement by the Federal Government and states for the 2016 budget outlay; the fiscal bail out for the states; expectation of social intervention of feeding and school programmes; impact of the increase in electricity tariffs by an average of N12kwH, and fuel subsidy removal.”

The analysts said these factors may result in a marginal but significant increase in inflation in the first quarter, with year-end inflation rate inching towards a level of 11 to 12 per cent.

“The good news is that the price inflation range of 20 per cent (11-9.5) will be lower than the GDP growth range of 40 per cent (4-2.8). In other words, output growth will be higher than consumer price increases. As the CPI is much slower than the rate of growth in GDP, inflation will bottom out and decline in the long term.”

Noting that money market rates were already at an all-time low, the FDC economic team said, “We expect to see a creeping up of rates as the level of government borrowing increases.”


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