Report foresees single digit inflation rate in Nigeria in 2013

CBN

The Financial Derivatives Company, a diversified financial institution, has  stated that the nation’s average rate of inflation will be at a single digit by year end.

The firm, in a report which focused on inflation, said  this is due to a number of factors which includes anticipated increase in productivity.

“Initial estimates for price inflation in 2013 suggest that the average rate of inflation will be at 9.24 per cent at the end of 2013.

“This is because of a number of factors including, increased productivity and subdued money supply growth,” the report stated.

The report stated that given the expected decline in inflation for December and a single digit outlook for 2013, there will be an opportunity for the Monetary Policy Committee (MPC) to consider moving to a more accommodating monetary stance in late January.

“In other words, the Central Bank of Nigeria could begin a slow and modest reduction in interest rates, e.g. reduction of the Monetary Policy Rate (MPR) by 25 basis points (bps) to 11.75 per cent per annum. However, if the budget impasse between the President and the National Assembly over the increased benchmark of $79pb (per barrel) is not resolved, the Central Bank may have no alternative but to retain its current MPR at 12 per cent per annum,” the report stated.

The MPC is expected to meet in about two weeks and the markets are waiting once again in somewhat nervous anticipation.

FDC’s Lagos urban inflation index declined for the second consecutive month and showed that prices of goods and services eased by 0.74 per cent to 11.87 per cent in December.

The decline from 12.6 per cent in November is attributable to the food basket which dropped by 2.15 per cent for the second consecutive month after the hike due to flooding, according to the FDC’s report.

According to FDC, prices of the commodities that eased include: vegetables (leaves), pepper, cassava, yams, beans and rice.

“The non-food basket rose marginally again by 0.15 per cent to 10.36 per cent in December, probably due to increasing distribution and logistics costs. The most noticeable commodities in this category were men’s apparel, cooking gas and building materials. Some non-food prices also declined, these include prices of toiletries, louver blades, air transport and kerosene while others remained unchanged relative to the levels in November,” the report stated.

In November, the MPC noted that inflationary pressure, which moderated in the third quarter of 2012, re-emerged in October 2012 from 11.3 per cent in September while food inflation increased to 11.1 per cent from 10.2 per cent in September. The year-on-year headline inflation also inched up to 11.70 per cent in October 2012.

The time lag between urban and national inflation converging suggests that National headline inflation will now decline to 11.94 per cent, according to FDC, and this is a recipe for the Central Bank to start considering a change in the interest rate policy.

“Our trend analysis and forecast suggests that the national head- line inflation for December will decline to 11.94 per cent. The 0.36 per cent decline from November’s 12.3 per cent is likely to be as a result of an increase in the supply of commodities, both imported and domestically produced in December,” Financial Derivatives said in its report.

The National Bureau of Statistics is expected to announce the result of its December price survey in a few days.