AS the National Bureau of Statistics (NBS) prepares to announce official data on the economy August 31, a herd of finance and economic analysts have predicted that imported food prices and depreciation of the local currency will push July inflation to over 17.3 per cent.
Economists frown at high inflation because it reduces not only the purchasing power of money but also the value of savings, just as people spend more on basic needs and have little to invest or save.
At First Security Discount House (FSDH) Group, analysts predicted that depreciation of the local currency will push July inflation to 17.35 per cent from 16.48 per cent recorded for the previous month. Also, analysts at FSDH Merchant Bank, believes that inflation will rise to 17.35 per cent in July and they “expect the increase to 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.”
Their counterparts at Financial Derivatives Company Limited (FDC), said factors driving inflation include the lower than expected supply of forex, a weaker naira and sporadic supply shortages in the energy market.
Having risen to a six-year high of 16.5 per cent in June, the analysts say they expect inflation rate for the month of July to rise further to 17.4 per cent which will be the highest in 11 years as low foreign exchange supply and energy shortage push costs higher.
“We expect the increase to 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.” Besides, the analysts stated, “Our analysis indicates that the value of the naira depreciated at the inter-bank market and the parallel market by 11.89per cent and 6.63per cent respectively in July 2016.
Similarly, analysts at Afrinvest West Africa Limited believe July inflation will berth at 17.6 per cent.
“We expect a further rise in Inflation Rate from June 2016 driven mainly by increases in both the Food sub-index (on account of higher domestic and imported food prices) and the Core sub-index (driven by higher energy prices) within the period. As a result we forecast Month-on-Month (MM-o-M) Consumer Price Index (CPI) growth in July at 1.6 per cent moderation from 1.7% in June-2016), implying a 17.6 per cent headline Inflation rate and 1.1 percentage points increase from June 2016,” wrote Afrinvest in a note to investors.