Analysts see November inflation rate up at 11.27%

A group of analysts at Financial Derivative Company Limited (FDC) have predicted marginal increase in headline inflation to 11.27 per cent in November.

The National Bureau of Statistics (NBS) had announced 11.26 per cent slowdown in inflation for the month of October from 11.28 per cent reported in September 2018.

But FDC analysts said that rise in the general price level would be driven primarily by a boost in liquidity, arising from Federal Government’s increased disbursements and state payments to contractors.

The FDC inflation report released at the weekend stated that: “Surprisingly, prices of commodities such as tomatoes and pepper recorded a decline in the review period. This anomaly in the price movement is expected to be short-lived as increased demand for festivities will push up prices in the near term. For example, a 50kg bag of rice now costs N16,000 (3.23 per cent increase).

“We also anticipate a marginal increase of 0.05 per cent in the month-on-month (MoM) sub-index to 0.79 per cent (9.92 per cent annualised), on the back of a boost in naira liquidity. M2 growth has increased by 6.52 per cent recently, annualised at 7.82 per cent.

“The time lag for the transmission effect of money supply on prices is getting shorter. This is because the velocity of circulation of money is increasing as a result of a shift towards electronic payments.

They expressed that higher diesel price and weakening of local currency might lead to cost-push factors as 2018 is coming to an end in days.

According to the analysts, in spite of the improvement in power supply, the average wholesale (depot) price of diesel increased by 13.15 per cent to N245/liter in November.

“This is expected to filter through to higher logistics cost, which could drive up firms’ operating and distribution expenses.

“Currency pressures are building up at the parallel market. The naira depreciated to N374/$ at the end of the month before retreating to N368/$. This occurred after the currency traded within a band of N360/$ to N364/$ for eleven months. Currency depreciation would increase the cost of imported goods. Meanwhile, the effect of this is likely to be felt in December’s inflation rate.”

Explaining on outlook, they noted that “currency pressures are building especially at the parallel market.

“This would increase the cost of imported goods.  Also, as we move closer to the Christmas period, we anticipate a boost in aggregate demand, which is likely to drive up domestic commodity prices.

“In addition, the imminent minimum wage would increase the level of liquidity in the system. All these factors point to a higher inflation rate at the end of the year,” FDC analysts stated.