Inflation seen declining for first time in 14 months – Businessday

The Bismarck Rewane-led economic consulting firm, Financial Derivatives Company (FDC) tips December inflation to cool 1.18 percent to 18.3 percent from 18.5 percent the previous month.

This would be the first time in 14 months that inflation is slowing, according to data compiled by BusinessDay.

Annual inflation in Nigeria has risen every month since October 2015, after food and energy costs ballooned on the back of dollar shortages caused by low oil production and prices.

However, FDC sees inflation slumping in December, ahead of the inflation report to be published January 16 by the National Bureau of Statistics (NBS), according to the bureau’s data release calendar.

“We forecast a decline in headline inflation rate (YoY) to 18.3 percent, the first change in the YoY direction in 14 months,” FDC economists stated in a Jan 11 note to clients.

“This can be attributed to waning base year effects. However, we do not expect this development in the monthly rate to be a permanent one,” FDC economists said.

December’s inflation forecast represents a 1.18 percent decline from the 18.5 percent recorded the previous month.

Declining inflation will come as a relief to the monetary policy committee, which has been waiting for the change in trend for almost an eternity.

After exhausting every arrow in its quiver, the Central Bank of Nigeria (CBN) had almost given up on the war against the indicator.

Slowing inflation is what the fiscalists and doves in the monetary policy committee need to support arguments for an accommodative monetary policy stance to complement the fiscal stimulus.

However, FDC observes that if estimates actualise and inflation declines, it is still a mile away from the CBN’s comfort zone of 6- 9%.

FDC was spot on when it forecast November inflation to touch 18.5 percent.

A December decline coinciding with a sharp increase in the PMI is good news. It might be an indication that consumer resistance to retail price increases may be driving prices down.

Analysts say it might also project that a high inventory level and borrowing cost environment are coaxing producers to bring down their prices.