Analysts foresee rise in Nigeria’s August inflation on supplementary budget spending

Analysts at Financial Derivative Company (FDC), Lagos-based economic and finance research firm, have projected a rise in inflation figures for the month of August on anticipated supplementary budget spending.

In a post-MPC report made available to business a.m. Thursday, the analysts equally foresee declining private sector lending, increased unemployment and underemployment (40%) and an estimated Q2 GDP growth rate of 1.7 percent to 1.9 percent in the near term.

They said the factors behind the MPC holding rates include anticipated year-end inflation rate of 13 percent; month-on-month inflation annualized at 15.94 percent; marginal increase in money supply (M2); dripping external reserves ($4bn outflow in 3 months); and higher US interest rates

Explaining the proposed lending incentive, FDC noted that CBN’s plan to reduce lending rates for employment elastic sectors by commercial issuance will encourage financial disintermediation.

According to the FDC, decisions on the cash reserve ratio implies that “banks can access CRR provided they lend for 7 years and a 2-year pass,” which is not available for refinancing of existing deals.

However, as money supply inches higher on the backdrop of pre-election spending potential external impacts such as an increase in US rates, possible decline on oil price amidst unlikely disruption in production is likely to impact consumers.

A review of food commodities prices in July 2016 compared with current prices show prices of palm oil, garri, rice, flour, sugar, and cement have declined by 33, 32, 16, 40, 17 and 6 percent respectively, prices of beans, tomatoes and semovita has increased by 59, 18 and 16 percent apiece while the price of a large tuber of old yam has remained flat.

Macroeconomic scorecard for selected sub-Saharan African countries reveal most central banks are adopting a wait and see approach as Nigeria, Ghana, Kenya and South Africa have opted to retain monetary policy rates while Angola opted to drop rate on a negative GDP growth rate as at Q4’17.