Inflation No Threat To Stability, Growth – Analysts | Independent Newspapers Limited
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Inflation No Threat To Stability, Growth – Analysts

Posted: Sep 19, 2016 at 4:17 pm   /   by   /   comments (0)

By Bamidele Ogunwusi.

 LAGOS – Analysts at Financial Derivatives Company (FDC) Limited have declared that inflation does not pose a potential threat to economic stability and growth, even though they are forecasting that last month’s figure will rise to 17 .5 per cent.

They stated this in a presentation the firm made at the Lagos Business School (LBS) Executive Breakfast meeting.

According to the analysts, the increase in the inflation rate from 16.5 per cent in June to 17.1 per cent in July “Is the result of the base year effect” and the month-on-month inflation of 0.6 per cent shows that inflation is slowing down from 0.8 per cent in June. Noting that the annualised rate of inflation is 7.4 per cent, the analysts concluded : “Inflation does not pose a potent threat to stability and growth.”

It would be recalled that in a note obtained by Independent, experts at FSDH, predicted that August 2016 inflation rate (year-on-year) will increase further to 17.71per cent from 17.13per cent recorded in the month of July 2016.

“We expect the increase to come from the increase in the prices of food items and other non-food items as a result of the continued pressure on the value of the naira”, the analysts stated.

Meanwhile, analysts at FBN Quest have predicted that continuing exchange rate volatility is likely to push inflation to 18 per cent by the end of the year. In a note made available to this newspaper, the analysts said: “Until the exchange rate stabilises, inflation is likely to trend higher.

We see inflation accelerating to 18.0per cent y/y at end- year.” Besides, they stated: “The Fx sourcing challenges have been the primary driver behind the surge in inflation this year and outweighed the impact of squeezed household consumption, which would normally have led to a moderation in inflation.”

However, in another report made available to this newspaper, international financial advisory firm, Renaissance Capital (RenCap) stated that most Nigerian companies were planning to increase the prices of their products to counteract the impact of naira devaluation on cost of goods and higher inflation.

The firm said that from meetings with listed and unlisted companies, product price checks and 1H16 results, it found that most of them were still having problems accessing forex despite the liberalisation of the interbank forex market in June.

“Most companies said they intend to increase product prices by 10-20 per cent in 2H16 to offset the impact of naira devaluation on imported Cost of Goods Sold (COGS) and higher inflation. They have not seen an improvement in FX availability in the interbank market since the devaluation in June 2016, which has resulted in capex deferral and rising FX related trade payables”, The firm stated:

The firm said: “We do not think this (price hike) will be enough to offset the negative impact of the naira devaluation on imported costs and generally higher inflation; however, management feedback is that this is likely the maximum range consumers can absorb without a significant negative impact on volumes.”

COGS are the direct costs attributable to the production of the goods sold by a company.

This amount includes the cost of the materials used in creating the good along with the direct labour costs used to produce the good.

RenCap further disclosed that its meetings with the companies also revealed that access to FX in the interbank market has become:

“More challenging since the devaluation of the naira in June 2016 although, some companies have increased the number of banks they use or ramped up exports in order to diversify sources of FX. Companies are therefore taking longer to pay international suppliers, as evidenced by higher trade payables days (including to offshore parent companies), and deferring capex other than stay-in-business capex.”