Nigeria’s January Inflation Seen to Remain Flat – Thisday

Obinna Chima

The Financial Derivatives Company Limited (FDC) has estimated a relatively flat movement in the January headline inflation rate to 18.6 per cent, from 18.55 per cent recorded in December.

The National Bureau of Statistics is expected to release January inflation figures tomorrow, according to its data release calendar.

Prices have generally either declined or remained flat recently.

The food basket especially has been relatively more inelastic than other commodities, according to the FDC.

The research and investment firm noted seasonality effects, supply shocks and exchange rate pass through effects through export smuggling are factors to influence the direction of inflation.

“Christmas festive spending contributed to a surge in demand at the end of 2016, albeit marginal in magnitude when compared to previous years. As January approached the seasonal slur in economic activities and lower purchasing power (due to payment of tuition and post Christmas blues) kicked in. Hence, a paltry increase of 0.05 per cent in the year-on-year rate in January,” it stated.

Power supply, distribution and logistics costs were a major challenge for manufacturers in January. Diesel prices skyrocketed to an average of N270/ltr from N140/ltr in the same period the previous year.

Power supply from the grid dropped sharply to 2500 MW in January leading to higher distribution and logistics costs. The Producer Purchasing index (PPI), the major ingredient of core inflation is likely to remain high

According to the FDC, exchange rate pass through was considered to have a one-way directional effect on prices. This meant that a weaker naira makes imports expensive. The new phenomenon was that a weak naira makes domestic goods cheaper and increases the incentives for export smuggling.

“The impact of rising prices is felt in the value naira-based earnings and investments. Individuals are unable to afford the same quantity or brands of items to which they purchased at the same income level.

“The fact that there is no corresponding real wage inflation to counteract the effects of rising price inflation has birthed strong consumer resistance in the market. This trend began to manifest itself last year as the pace of inflation began to slowly ease. “However, albeit this revision of expectations, consumers are still unhappy about their present economic realities and have taken to the streets in protests against government policy and economic hardship,” it added.