Increase in electricity tariff will worsen inflation in Nigeria – Analysts

Nkiruka Nnorom

25 June 2012, Sweetcrude, LAGOS – NUGERIA may not be able to sustain the marginal decline in inflation rate achieved in the month of May as a result the recent increment in electricity tariffs, a report by analysts from Dunn Loren Merrifeed has said.

According to data released by National Bureau of Statistics, the headline inflation eased to 12.70 per cent year-on-year in May 2012, which is 20 basis points lower than the 12.90 per cent recorded in the previous month.

But, the analysts stated in their May review of the country’s inflation that despite the positive outlook, the high inflation levels would persist in the short to medium term with the Composite consumer Index Price (CPI) expected to peak at 14 per cent during the year.

They argued that their projection was based on the impact the exchange rate would have on domestic prices following severe pressure mounted on the naira due to increased demand of the dollar to fund the nation’s heavy reliance on non-oil imports, adding that import levels have risen substantially in recent time, increasing from US$42 billion (N6.64 trillion) in 2010 to US$65 billion (N10.27 trillion) in 2011.

Though they observed that the slight decline in inflation was largely driven by certain food items captured by the food index, they stated that the contribution of these items to the overall index is minimal given their relatively smaller weights in the index.

The report said, “The high year-on-year change was partly attributable to the short supply of some farm produce due to the farming season which led to persistent increases in the prices of these food items, for example vegetables. Other notable increases were in catering services as well as the cost of some miscellaneous services, such as appliances, articles and products for personal care. The monthly composite CPI was higher by 0.75 per cent in May 2012 when compared with April 2012.

“The index for food was higher year-on-year by 12.9 per cent and increased by 1.2 per cent on monthly basis. The rise in the food inflation was mainly due to the rise in food products; particularly vegetables, bread, cereals, yam and other tubers. The core inflation index captured by the “All items less farm produce” also rose by 14.9 per cent on yearly basis and inched up by 1.1 per cent on month-to-month basis.”

They held that in the face of the resurging inflationary threats, there was need for gradual reduction in the benchmark rate to a single-digit. “Ahead of the meeting of the MPC in July and existing inflationary threats, we maintain our position on gradual reduction of the benchmark rate to single-digit levels.

Our position is under pinned by existing growth concerns, need to increase production levels and strengthen the domestic currency. Nigeria’s Real Gross Domestic Product (GDP) on an aggregate basis grew by 6.17 per cent in the first quarter, down 47 basis points from the 6.64 per cent recorded in the corresponding quarter of 2011,” the report said.

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  • The major problem we’re having in this country is unstable price of a commodities and this is killing our currency and economy in generall . I want the authorities of the country to help masses to tackle inflation so that our curency can have value for instance we cannot buy anything wit one naira anymore which is very bad, government should come to our aid.