New Telegraph

FDC predicts 15.4% inflation rate for December 2020



Nigeria’s inflation will maintain its upward trend and may likely hit 15.4 per cent in December 2020, from 14.89 per cent in the previous month, analysts at Financial Derivatives Company (FDC) have said


The analysts made the prediction in the firm’s latest Economic Bulletin obtained by New Telegraph at the weekend.


According to the analysts, the projected inflation rate for December 2020 “will be the highest level in 37 months, driven mostly by forex rationing, output and productivity constraints, higher logistics and distribution costs.”


They, however, stated that the rate of increase in the general price level is expected to decelerate, adding that “this could imply that the reopening of the land borders and the harvest of commodities such as tomatoes and onions is beginning to taper pricing pressures.”


The analysts noted that although their December survey showed that strong seasonality (yuletide) factor pushed up demand especially for goods such as rice, turkey, vegetable oil and chicken, resulting in manufacturers increasing commodity prices, the rate of increase was not as much as in the previous year, because, according to them, aggregate demand was weaker in 2020 compared with 2019.


“Consumer disposable income has been negatively affected by the hike in electricity tariffs, general reductions in subsidies and improved tax mobilization. The breakdown of the findings shows a mixed movement in commodity prices. While the price of tomatoes, onions and rice declined.


items such as palm oil, noodles, chicken and turkey recorded price increases. Hence, food inflation is expected to rise at a slower pace to 18.5 per cent in December,” the analysts explained.


They further stated that the non-food component of the inflation basket also increased last month “reflecting the impact of exchange rate devaluation and higher logistics costs.”


The analysts also pointed out that while the low interest rate environment during the period was expected to have served as an incentive to consume especially, given that low interest rates usually disincentivize savings, and this was not the case as “lending rate remained sticky downwards.”


According to the analysts, the inflation rate will be a major consideration in the determination of the stance and the level of the Monetary Policy Rate (MPR) at the meeting of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) later this month as the projected rate of inflation (15.4per cent) will be 6.4per cent higher than the CBN’s 6-9 per cent target rate for inflation.


In a report released a few weeks ago, analysts at Cowry Asset Management Limited said they expected inflation to continue on its upward trajectory in December 2020 due to increase in demand for goods and services during the Christmas season, lingering forex scarcity as well as the impact of the prevailing insecurity in the country on agriculture.

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