LAST month’s inflation rate is projected to moderate to 8.2 per cent, 0.16 per cent lower than the 8.4 per cent recorded in February, Managing Director, Financial Derivatives Company Limited, Bismark Rewane, has said.
In the FDC Economic Report released yesterday, he said the decline is surprising given the economic trends such as currency devaluation, a fiercely contested election and the commencement of the lean season.
In spite of these hitches, he said manufacturers, treasurers and the markets increased their inventories in anticipation of currency devaluation.
He said the impact of the decrease in money supply (M2) for January this year and the lower prices of international commodities relative to the same period last year are factors that weighed in favor of the price moderation.
He said there was speculative buying and fuel scarcity in March but had minimal impact on retail prices.
He said Lagos urban inflation index also declined to 10.26 per cent in March, 0.53 per cent from 10.79 per cent in February. The year-on-year food and non-food indexes decreased by 8.68 per cent and 11.06 per cent respectively, in March, from 9.99 per cent and 11.19 per cent in February. The decline, he added is in line with the projected headline inflation which is attributed to the sustained lower global commodities and consumer prices.
Rewane said headline inflation rate in April is expected to increase to 8.3 per cent due to the impact of currency devaluation and the intensity of the planting season. He said movement in sourcing of forex for raw materials from the Retail Dutch Auction System (RDAS) to the interbank market effectively increased their costs by 13 per cent. He said the Central Bank of Nigeria (CBN) has maintained a tight liquidity policy in April which has seen rates in the interbank market spike to 70 per cent per annum.
“Our March outlook for inflation is unlikely to influence the exchanges rates. However, the naira will continue to experience volatility at the interbank and parallel markets as foreign investors continue to speculate and sustain the demand pressure in these markets. “We estimate that the naira will trade within N197 to 199 to dollar at the interbank market against the dollar and may subsequently depreciate further should oil prices fall below $50 per barrel,” he said.
He said the equities market remained oblivious to inflation rate. “Intuitively, given that we expect no significant change in the money market, we anticipate stock market activities will be impervious. However, stock price decline in March was due to capital flight initiated by foreign investors as the elections drew near. The bearish position held by investors was also driven by reversal of capital flows by hedge funds and international investors,” he said.