A Review of the Nigerian Energy Industry

Inflationary pressures to intensify in Q2

Market place in Ibadan, Nigeria.
Market place in Ibadan, Nigeria.

13 April 2015, Lagos – As the National Bureau of Statistics (NBS) prepares to announce the inflation update for March, 2015 (Q1 round-up) economy analysts are expecting further push up not just for the March, 2015 but also indicating further rises in the months through second quarter 2015 and beyond going by some underlying factors. NBS is set to release the figures officially by Thursday this week.

This forecast is coming despite the recoveries Naira had recorded against US Dollar in the period under review (March-April). Analysis of the foreign exchange rate of the local currency indicated that the value of the Naira appreciated against the US Dollar by 1.98 per cent from US$/N203.06 in February, 2015 to US$/N199.11 at the end of March, 2015.

However, economists at First Securities Discount House Limited (FSDH) observed that a number of imported transactions were carried out in the month of March at an exchange rate range of US$/N210 – US$/N225. They therefore posit that local prices are yet to fully absorb the impact of the 15.26 per cent devaluation of the Naira experienced in the month of February 2015.

Consequently they anticipate that the full effect of the devaluation will at some point in time during the course of the year reflect in the inflation rate and this should result in a spike to 11 per cent, indicating that inflation rate may exceed the Central Bank of Nigeria (CBN) target range of 6 – 9 per cent.

The FSDH Inflation model indicates that the price movements in the consumer goods in March 2015 would increase the Consumer Price Index (CPI) to 168.47 points, representing a month-on-month increase of 0.96 per cent.

The model also estimates that the increase in the CPI in March will produce an inflation rate (year-on-year) of 8.6 per cent, higher than the figure recorded in the month of February. Looking ahead, according to FSDH analysts, the inflation rate for the month of April 2015 is expected to be higher than the March 2015 figure. Consumer Price Index (CPI) for the month of February 2015 had pushed the Headline Index to move up by 8.4 per cent year-on-year, as against 8.2 per cent in January, 2015.

CPI measures inflation rates and the increase reflects rising cost of goods in the economy. In the last CPI Report NBS said all the components that contributed to the index increased at a faster pace during the period, noting that the only exception was Recreational & Culture which also increased but at slower pace. According to the report, Food prices as observed by the Food Sub-index increased at a faster pace in February partly due to increases in prices of imported food items.

The Imported Food Sub-index increased by 8.8 per cent (year-on-year), the highest increase recorded since February 2013. The Food Sub-index rose by 9.4 per cent (year-on-year). In the Group report, NBS said while most groups that contributed to the Food Sub-index increased at a faster pace during the month of February 2015, the pace of increase was weighed down by a slower increase in the Bread & Cereals sub-group.

The pace of advances recorded by the “All Items Less Farm Produce” or Core Sub-index increased for the second consecutive month in February, 2015. The Core Sub-index increased by 7.0 per cent (year-on-year), 0.2 percentage points from 6.8 per cent recorded in January 2015.

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