Supply Problems Push Inflation To 16.5 % | Independent Newspapers Limited
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Supply Problems Push Inflation To 16.5 %

Posted: Jul 19, 2016 at 4:32 am   /   by   /   comments (0)

Bamidele Ogunwusi, Isuma Mark

LAGOS/ABUJA – Nigeria’s headline inflation is currently experiencing its worst supply constraints since October 2005 when the Consumer Price Index (CPI) used in measuring inflation in the Nigerian economy rose to an unprecedented 16.5 percent for the month of June.

The increase is driven by higher food prices, increased energy costs and rising costs of imported goods due to the weakened naira exchange rate at both the official and the parallel market segments.

However, experts believe that the development may be nearing a breakpoint as the country may likely begin to experience a slowdown in inflationary rate from July.

The report which was released on Monday by the National Bureau of Statistics (NBS) shows that inflation for the month of June rose from 15.6 percent in May 2016 to 16.5 percent in June 2016.

Independent had reported two months ago that Nigeria’s inflation could climb higher considering cost of energy and food prices. These factors, NBS mentioned exerted influence consequently inducing latest inflation rate.

According to the NBS report, “In June, the Consumer Price Index (CPI) which measures inflation continued to record relatively strong increases for the fifth consecutive month,” it said.

Statistically, it said, “The headline index increased by 16.5 percent (year-on-year), 0.9 percent % points higher from rates recorded in May (15.6 percent).

“Most COICOP divisions which contribute to the headline index increased at a faster pace, the increase was however weighed upon by a slower increase in three divisions; Recreation & Culture, Restaurant & Hotels, and Miscellaneous Goods & Services year on year, energy prices, imported items and related products continue to be persistent drivers of the core sub-index,” the report added.

According to it, the core index increased by 16.2 percent in June, up by approximately 1.2% points from rates recorded in May (15.1 percent). It added that, during the month, the highest increases were seen in the electricity, liquid fuel (kerosene), furniture and furnishings, passenger transport by road, fuels and lubricants for personal transport equipment.

The report said that apart from farm produce, the core sub-index increased by 16.2 percent in June (year-on-year), up approximately by 1.2 percent points from 15.1 percent recorded in May.

Also “the core sub-index has increased at a faster pace for five consecutive months. Over the first six months of the year, the core sub-index increased by 12.8 percent, up 5.2 percent points from rates recorded in the corresponding period in 2015.”

This continuous rise has been consistent with Independent projection that inflation would rise up to 20 percent before the end of 2016 due to the crisis rocking the forex policy of the Central Bank of Nigeria (CBN). This crisis has been blamed for increasing jump in inflation as importers continue to suffer losses due to lack of foreign exchange.

The increase in pump price of fuel added new impetus to increase in all fronts. With Nigeria depending on imports of everything, the ember months are expected to induce further inflation as demands for goods might ultimately outweigh availability.

Bismarck Rewane, Managing Director of Financial Derivatives Company Limited, said the expected slowdown will begin to manifest from July as some of the efforts being currently made by the government and its agencies begin to yield fruits.

He cited the silent agriculture revolution in rice farming and production as one which is capable of pulling inflation down.

“Inflation in Nigeria is not as a result of money shortage but supply shortage and this will begin to show positive changes when our supply chains improve”, her said.

Dr. Ogho Okiti, President/CEO, Time Economics Ltd, said unlike the previous month, headline inflation increased by 0.9 percent which is a much slower pace compared to the growth of 1.9 percent seen in the May data.

“As expected, both the core and the food sub-index all recorded gains albeit at a smaller pace. Compared to the month-on-month growth rate of 1.6 percent seen in May, food index rose month-on-month by 15.3 percent which is a difference of mere 0.4 percent compared to the 14.9 percent recorded in May. Core inflation also followed a similar trend; moving up by the rate of 1.2 percent compared to the previous 1.7 percent to advance by 16.2 percent from the 15.1 percent seen in the preceding month.

“The June CPI data was in line with our expectations. Having almost doubled since June 2015, we anticipated a gradual reduction in the growth rate of price increases. The factors driving inflationary pressures in Nigeria are more of structural and cost-shock than demand related. Over the last few months, we have seen prolonged fuel scarcity leading to the eventual removal of subsidies on petroleum products, an increase in electricity tariffs by over 40 percent and a sharp depreciation in the naira exchange rate across the official/inter-bank market and the parallel markets.

“These were further compounded by an economic slowdown and the inability of the business community to access foreign exchange, in adequate quantity, for the importation of raw materials and machineries needed for smooth production of goods and services. Thus, current inflationary pressures arose from these structural shocks.

“However, cost driven inflations typically tend to be transitory in nature due to inbuilt adjustments mechanisms in the economy. With the fuel scarcity challenge out of the way, the economy appears to have largely adjusted to the increase in the pump price of PMS, the higher energy costs and the weakened naira exchange rate. Thus, in the absence of any new major shock to the system, we expect growth in the headline inflation to moderate at the current levels in the months ahead.”

Matthew Ogagavworia, a Lagos-based analyst, believes that the government may as well use some of the might it is currently using to fight corruption to improve productivity in the country.

“As you can see, the rate at which inflation grew in July was slower than it was in May and I believe that we may not be too far from the Promised Land but I am of the opinion that government should pay more attention to other things in the economy and not on fighting corruption alone.

“If half of the attention being given to the corruption fight is diverted to the economy, things will be better. Imagine a total declaration of emergency in sectors like agriculture, manufacturing and production. These sectors will bring good tidings for the country if adequate attention is given to them”, he said.

Rasheed Alao, an economist, believes that the implementation of the 2016 budget will positively affect the rising inflation rates.