New Telegraph

Analysts: Rising energy costs, currency pressures’ll worsen inflation

As reactions continue to trail the latest Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) last Monday, analysts at CardinalStone Research have predicted that the index could climb higher in the remaining months of the year due to rising energy costs and the impact of existing currency pressures.

The NBS report showed that the annual inflation rate maintained its upward trend, as it further climbed to 14.23 per cent in the month of October from 13.71 per cent in September, a development, analysts said was due mainly to an increase in food inflation rate to 17.38 per cent in October, from 16.66 per cent recorded in September.

Reacting to the report in a note obtained by New Telegraph, the CardinalStone Research analysts said they expect energy cost pressures to offset the usual seasonal harvest impact on food prices at this time of the year.

The analysts stated: “Rising energy costs from higher electricity tariffs and increases in petrol prices are likely to compound the impact of existing currency pressures and weigh on the price environment in the final months of the year.

“After the initial suspension of electricity tariff hikes for three weeks in October, the cost increase (capped at 30 per cent) took effect on October 18, with the impact on consumer prices likely to manifest in coming months. Additionally, the liberalization of the downstream oil and gas sector has introduced more volatility to fuel costs, which should track movements in global crude oil prices and other key variables.

“The most recent hike in PMS prices to between N168-170 per litre in November marks the fourth increase in PMS prices since June, and higher projections for crude prices suggest that pressures on this front may subsist in the near term.

“Already, higher energy costs and legacy issues appear to be counteracting the price-moderating impact of the harvest season, leaving legroom for sustained inflationary pressure in the last months of the year.”

In fact, the analysts said they forecast inflation to increase to 14.70 per cent in November even as they retained their average inflation forecast of 13.2 per cent for 2020. Meanwhile, in another report released at the weekend, analysts at Financial Derivatives Company (FDC) pointed out that the latest CPI report released by the NBS indicated that all market sub-indices jumped in October, a situation, they said “instils fear that Nigeria might be approaching an era of hyperinflation especially with the recent 6.25 per cent increase in the pump price of fuel (PMS).”

They further stated: “The upward trajectory recorded in the last 14 months is expected to continue in November. The policy of restricting imports despite numerous impediments to local supply will remain a major driving factor for rising inflation in the coming months.”

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