Double digit inflation to persist till 2019 year end, says experts

A BREWING CONCERN OVER an increasing trend in general price levels in Nigeria is being seen as a signal that could adversely affect low income earners and citizens with fixed income levels in the country.

Price increases of goods and services also known as inflation is measured commonly with the Consumer Price Index (CPI). Nigeria’s inflation rate as at December 2018, had reached a 7 month high of 11.44 percent.

Some local based economist have however asserted to elements that could further increase rate to as high as 14 15 percent by year end.

While economic analysts at Afrinvest see the proposed power, oil and gas reforms as potential risks for the inflation rate, others at Cordros Research, are of the opinion that the implementation of the new minimum wage, currency devaluation, as well as PMS and electricity price hikes stand as notable upside risks to inflation in 2019. Thereby forecasting year-end inflation rate of 13.55 percent year-on-year growth.

“We estimate monthly inflation to average 12.2 percent in 2019, an improvement over 16.5 percent in 2017.

In 2019, we expect inflation to remain elevated at double-digit levels but we note that the inflation trajectory remains largely unclear for various reasons,” economists at Afrinvest led by Ayodeji Ebo said in their latest report, in the Precipice.

Continuing, they noted that the biggest downside risk being foreseen is supply shocks.

“These will come from an adjustment of petrol and electricity prices as well as continued insecurity in the food planting Middle-Belt.

In our opinion, the impact of the new minimum wage will be moderate as funding remains unclear due to weak government finances.

This will likely cause implementation to suffer, especially at the sub-national level,” they opined.

Monetary policy authorities strive to keep their inflation rate as low as possible, this is because double digit rate in the 10%-20% range means the currency is devaluing much faster than it needs to be.

Prices going up that drastically can have a devastating effect on the lower and working class populations, who were already struggling financially, as incomes don’t rise in tandem with prices, and fewer goods are purchased, throwing the economy into chaos.

SBM Intelligence another Lagos based research firm stated Friday that the most concerning thing about the figures from the NBS is the sustained high level of food inflation, which means that Nigerians, who spend so much on food already, need to continue to spend more.

In December, food inflation notched higher yearon-year by 0.26 percent to 13.56 percent as against 13.30 percent recorded in November. This growth was on the back of an increase across farm produce (+33bps to 13.03% y/y) and imported food (+11bps to 15.66% y/y).

“This rise in the food index was caused by increases in prices of soft drinks, Fish, Bread and Cereals, Oils and fats, Coffee, tea and cocoa, Meat, Milk, Cheese and egg, Vegetables, Potatoes, yam and other tubers,” the NBS noted.

According to SBM, this is more worrisome, particularly given the fact that Nigeria is in an environment where wages are not growing, and in which prices double roughly every five to seven years.

“Over the last half decade, Nigeria has lingered in a low growth position and has added double-digit inflation position over the last three years.

Very urgent policy measures must be taken to address this. However, as we have entered the high political season, we do not expect this to be high on the government’s priority list, so our advice to Nigerians would be to gird their loins, “SBM noted.