Inflation Predicted to Drop Marginally in June – Thisday

By Obinna Chima

After an almost unstoppable rise in headline inflation to a record high, the economy may be entering an era of declining rates of inflation, analysts have predicted.

For the Financial Derivatives Company Limited, the inflation rate for June 2016 expected to be released today may see the Consumer Price Index (CPI) drop slightly from 15.6 per cent in May, to 15.5 per cent.

“If this estimate turns out to be accurate, it will raise some fundamental questions as to the direction of inflation and possible level of interest rates in the money markets. Headline inflation in Nigeria had almost been loose cannon, defying most rules of economic gravity and logic.

“The root cause of the near hyper inflation rate can be traced to supply shocks at-times attributable to artificial scarcity compounded by uncertainty in the forex markets.  The Big question therefore is whether this drop in inflation is a blip or a point of inflection.

“Economic history has shown that disinflation (a period of declining inflation) is usually a result of adaptive expectations.  The theory of adaptive expectations assumes that people form their expectation of future inflation on the basis of previous and present rates of inflation and gradually change their expectations as experience unfolds,” the FDC stated in a report.

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