Worry over Hike in Inflation Rate

Fri, Jan 17, 2014

By publisher

6 MIN READ

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The National Bureau of Statistics has released the inflation figures for December which showed that Consumer Price Index increased by 8.0 percent as against the 7.9 percent recorded in November

|  By Anayo Ezugwu  |  Jan. 27, 2014 @ 01:00 GMT

NIGERIANS are worried over the sustained hike in inflation rate since November 2013. The inflation rate has continued to accelerate in the country in December adding more pressure to the life of the average Nigerian as cost of living escalates. The National Bureau of Statistics, NBS, on Tuesday, January 14, revealed that the Consumer Price Index, CPI, which measures inflation in December 2013,  rose by 8.0 percent (year-on-year), edging higher by 0.1 percentage points from 7.9 percent recorded in November 2013. Yemi Kale, statistician-general of the federation, stated that the prices rose on the back of increases in eight of the eleven non-food classification of individual consumption according to purpose, COICOP, divisions which contribute to the core sub-index.

According to Kale, increases in these divisions were, however, offset by slower increases in alcoholic beverage, tobacco and kola, housing, water, electricity, gas and other fuels, as well as the transport divisions. “As a result, the core sub-index rose by 7.9 percent in December, marginally higher from 7.8 percent recorded in November. This is the sixth consecutive month of an increase in the core,” he said.

Kale noted that the price for food sub-index grew at the same rate in December as recorded in November at 9.3 percent and that price for major food classes, such as bread and cereals, meat, fish and dairy classes also increased. He stressed that prices, however, rose by less, in the potatoes, yams and other tubers, fruit, vegetables, sugar, jam, honey, chocolate and confectionery classes, yielding the unchanged year-on-year rate.

“It should be noted, however, that the headline index is made up of the Core Index and Farm Produce items, and as processed foods are included in both the core and food sub-indices, this implies that these sub-indices are not mutually-exclusive. On a month-on-month basis, the headline index increased at a faster pace rising by 0.78 per cent in December, up from 0.72 percent recorded in November, even as this was the highest month-on-month change throughout 2013.”

Giving a further breakdown, the NBS boss, said the urban composite CPI was recorded at 151.4 points in December, indicating a year-on-year increase of 8.1 percent, unchanged from rates recorded in November, just as the   corresponding Rural National CPI recorded a 7.9 percent year-on-year change in December the first uptick recorded in five months.

On a month-on-month basis, the urban all-items index increased by 0.8 per cent in November, the same rate over the last four months, while the rural all items index was recorded at 0.76 percent, up from 0.68 recorded in November. The percentage change in the average composite CPI for the 12-month period ending in December 2013 over the average of the CPI for the previous 12-month period was recorded at 8.5 percent, 0.3 percentage points lower than the average 12-month rate of change of 8.8 percent recorded in November, and maintaining the decline of the index throughout 2013. The corresponding 12-month year-on-year average percentage change for the urban index was 8.8 percent, while the corresponding rural index was recorded at 8.4 percent.

However, financial and economic analysts have also expressed concerns over the looming ‘macro-economic instability’ in the country, saying patronage politics could make this year, which is a pre-election year, an economically harsh one. According to them, a lot of money being piled up by politicians for elections next year would be released into the economy this year, a situation they say might make the naira to lose value as well as cause high inflation.

Abel Awe, an economist, said the situation defied what monetary authorities could use monetary measures or economic policies to control as a lot of the money to be pumped into the system by politicians is outside the control of the Central Bank of Nigeria. “This will cause demand-pull inflation. The consumer price index, which is measured by the prices of goods and services produced locally, may remain fairly stable. But there will be pressure on the exchange rate because of imported goods. Nigeria is an import-dependent nation and so, it will affect goods that are coming into the country. When you have too much money in circulation, it will affect the value of the exchange rate. I don’t know the kind of economic theory we can use to curb this other than to beg our politicians. I don’t think the CBN is in a position to control this because our democracy is highly monetised,” Awe said. The economist further noted that the federal government was not helping matters by making the 2014 budget’s recurrent expenditure more than 70 percent, while capital expenditure took less than 30 percent.

On its part, the Lagos Chamber of Commerce and Industry, said that inflationary pressures might intensify this year as a result of a number of factors impacting the supply in the economy. The LCCI listed the factors that would put pressure on prices as exchange rate depreciation in the parallel market; high transportation cost; high energy cost; high cost of funds; the proposal to ban fish importation and deregulation of the downstream oil sector if the Petroleum Industry Bill is passed. “It will be difficult to keep inflation within single digit in 2014 given the various variables that would generate pressures on prices,” it said.

According to the LCCI, pre-election activities may affect the economy through distorted partisan politics and heightened election spending. It, however, said the resilience of the economy would endure the developments. The Chamber, like other industry analysts, also said: “The naira will experience a moderate depreciation given the current pressure on the foreign exchange market and the increasing divergence between the parallel market rate and the official rate. The mounting pressures on foreign reserves and Excess Crude Account are indicative of this. These developments will also fuel speculative activities and round-tripping in the foreign exchange market. A moderate depreciation is expected and this is already envisaged in the Medium Term Expenditure Framework and the budget, where the exchange rate assumption is N160 to the dollar. Business model of investors in 2014 should, therefore, make an appropriate allowance for a moderate depreciation in the naira exchange rate.”