FSDH predicts higher inflation, says CBN may pursue growth

There are indications that if the May 2019 inflation rate forecast comes true, Nigeria may record the highest inflation rate figure since January 2019.

The firm made this prediction in its latest report released last week.

It stated that this would not be good news for the economy or the purchasing power of Nigerians.

FSDH also considers the Central Bank of Nigeria (CBN) may pursue economic growth at the expense of the inflation rate in the short-term.

It may, however, adjust its monetary policy tools such as Open Market Operations (OMOs) to reduce excessive supply of cash in the system the firm observed.

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“FSDH Research notes that one of the ways to reduce Nigeria’s inflation rate in a sustainable manner is to improve the infrastructure in the country.

“Good transport network, good storage facilities, measures to increase farm yields, provision of securities and strategies to ensure linkage between the farmers and the industrial sector will increase the supply of food items, increase profit margin and lower the inflation rate,” the report stated.

According to the report, May inflation rate is expected to further increase marginally to 11.39 per cent from 11.37 per cent recorded in April 2019.

In addition, “we expect the month-on-month change in the Consumer Price Index (CPI) to increase by 1.10 per cent in May 2019, the highest since January 2019. With the onset of the rainy season, we have observed upward pressure on the food component of the inflation basket,” it further stated.

The major driver of the expected increase in the inflation rate is the increase in food prices, due to the seasonality effect typically associated with the onset of the planting season. Security challenges in some food producing regions in Nigeria reduce the supply of food items, leading to an increase in prices.

According to FSDH Research the current inflation rate is higher than the 6per cent – 9per cent target set by the CBN.

Given current realities, the inflation rate will remain above the CBN’s target in the short-to-medium-term. This may reduce the real yield on fixed income securities says the research and financial advisory firm.

Meanwhile, the value of the Naira at end-May was N360.43/US$ compared with end-April N360.40/US$ indicating a marginal loss of 3kobo in the value of the Naira. The depreciation in the Naira coupled with the rise in the prices of food items on the international market mean an increase in the local price of imported food items.