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Tag: Inflation

  • Inflation: A lexical theory

    Inflation: A lexical theory

    This is as good a time as any to revisit a hypothesis I first laid out several decades ago, most likely in a column for The Guardian.

    Back then, inflation was running at a brisk pace that no one dared mention for fear of being charged with a crime against National Security or banished to Gashua, in the remote Northeast of Nigeria, the unlikeliest candidate then for host to a federal university.  Ask the venerable Professor TS David-West.

    But the rate of inflation could not have been lower than what obtains today – 18. 5 per cent, most likely understated.  The “settlement culture” was flourishing as never before, especially in the wake of the “June 12” crisis, and the Mint was sent into overdrive to churn out the lolly.

    The political terrain was saturated with cash, and the Central Bank knew better than to even create the illusion that it was mopping up excess liquidity; doing so would have subverted the settlement culture undergirded by national policy.

    Today, ever so often, the Central Bank steps in to sell treasury bonds and take other measures to curb excess liquidity and thus tame inflation.  Yet, despite the CBN’s exertions, that pesky metric stands at a disconcerting 18.5 per cent.

    With this background, I can now proceed to the hypothesis I adumbrated several decades ago.  I called it the literary theory of inflation.  In retrospect, I have re-christened it the lexical theory of inflation.

    Now, according to the best authorities, inflation is the rate at which the general level of prices of goods and services is rising and, consequently, the purchasing power of currency is falling.

    That seems to be the condition of the Nigerian economy today.  There is plenty of anecdotal evidence for it.  Two close relations tell me that within a week of taking out N100, 000 from the bank, it is all gone, with little to show for it.  They tell me they have to make an inventory of their purchases and spending just to convince themselves that they had not been chiseled out of the money by a pick-pocket or a shopkeeper.

    How those who earn the minimum wage of N18,000 a month – which many state governments say they cannot pay, and have in any case not paid for six months running – how such people live from one day to the next must be one of the nation’s best-kept secrets.

    At this point, the reader must be wondering:  What has lexis got to do with inflation?

    Lexical inflation, as I operationalise it in this submission, is the rate at which the idiom, the vocabulary of public discourse is billowing, consequently eroding the power and meaning of language.

    My lexical theory of inflation holds that, in a given setting, all things being equal, the lexical inflation varies directly as the rate of inflation in the general economy.  In other words, as the general level of prices for goods and services increases, the idiom, the grammar of public discourse balloons, leading to the degradation of language.

    This formulation does not pretend to the rigour, the tight coherence of those social science theories that have stood the test of time. I hope an accomplished scholar, or at the very least,  an ambitious graduate student desirous of earning a place in the world of learning, will judge it worthy of further enquiry and systematic explication.

    For now, it is sufficient to call attention to some examples which appear to validate the theory, proceeding from a longitudinal perspective.

    Remember that time when, according to General Yakubu Gowon, money was not a problem but how to spend it? The Udoji salary bonanza backdated one full year tested the absorptive capacity of Nigerian economy as never before, or since.  A friend of mine quipped then that money was not his problem all right, but how to find it.  On the whole, however, it was money, money, money everywhere.

    In the inflationary spiral set off by the bonanza, goods and services became more expensive. Lexical inflation developed to match it, in keeping with my theory.

    It was no longer sufficient to run a firm or a company.  It had to be a group of companies, even if both operated from the same cramped store front.  In short order, the “group of companies” was supplanted by the “group of industries.”

    One example from that era clings in my memory:  The Abulu Group of Industries. You had to be visually impaired not to see its huge signboard on the facade of a two-storey building on Ikorodu Road, between Jibowu and Palmgrove in Lagos.  Its line of business was not stated.  But you stood in awe at the facility housing not just one industry but several industries, and of course, the self-effacing owner.

    It was beneath one’s dignity to answer to the title of manager. To count for somebody, you had to be a chairman, or a managing director, or both.  And you could, for good measure, add a third:  chief operating officer.

    Every large building became, first, a Complex, and then an Ultra-modern Complex.  Being a federal permanent secretary was no longer a sufficient distinction.  You had to be a super-permanent secretary.

    There was this Lagos barber who owned a shop on Ojuelegba and another in Lawanson.  He ran them on alternate days, taking a break on Sundays. On account of that arrangement, his business card introduced him with touching modesty as managing director of a Barbers’ Group.  A more discriminating person would have named the arrangement The Capillary and Tonsorial Artists’ Group.

    Now, fast-forward to the present.

    There was a time when newspapers were content to have political editors, sports editors, features editors, business editors, science editors, and literary editors.   Not anymore.  To keep pace with the rampant inflation in the economy, the media have had to engage in some lexical inflation of their own.

    The staffer formerly known as the political editor has since been re-designated “group political editor”   His or her colleagues on the other specialty desks have profited from the same lexical inflation.

    Every hamlet in Nigeria is now a “kingdom,” over which a king or “monarch” rules dutifully, with a panoply of princes and princesses and king mothers and queen mothers and lesser royals.  When the monarch was just a paramount chief, he was content with the title “His Highness.” As lexical inflation gathered pace, he became His Royal Highness.

    But that too is now passé.   To be considered a significant monarch, you must have His Majesty prefixed to your name.  But even that does not secure your status, since there just may be some majesties who are not royals.  So, better to insist on “His Royal Majesty.”

    But why settle for that when you can take on the lexically formidable title of “His Imperial Majesty”?

    Nigerian politicians have always felt that there was something not merely inchoate but frankly belittling in being called a State Governor.   Nor do they accept that the prefix “His Excellency”  truly reflects their status.  After all, ordinary career ambassadors are also entitled to the prefix.

    So, to make the title reflect the gravity of the office, they insist on being called “Executive Governors.”  Senators do not want to be mistaken for members of the House of Representatives who are merely honourable; you have to call them “distinguished” even if most of them are distinguished only for being distinguished, like those of whom it has been said that they are famous only for being famous.

    A final thought:  My theory holds, remember, that lexical inflation varies directly as the currency inflation in a given setting, all things being equal.  Consequently, when they pad the Budget remorselessly, they are preparing the ground for the kind of lexical inflation we have never experienced.

  • Inflation is out of control, says expert

    The rising inflation rate in the country has gone beyond the Central Bank of Nigeria’s (CBN’s) control,  Head of Research, Nigerian Economic Summit Group (NESG), Mr. Olusegun Omisakin, has said.

    Speaking in Lagos, Omisakin said the rising inflation had defied CBN’s monetary policy measures, adding that policy tools adopted by the apex bank were only effective in taming inflation arising from demand-supply imbalances.

    “In this case, inflation is cost-push. Production cost is high because producers, who want to import intermediate goods for production, do not have access to foreign exchange. Most of them go to the black market and definitely the product from this would be expensive, thereby increasing inflation,” Omisakin said.

    According to him, the CBN could not do anything through the monetary policy rate to arrest inflation. He said even if the CBN increased the Monetary Policy Rate (MPR) to 20 per cent, inflation would not come down.

    His words: “The inflation we are experiencing now is out of the control of the CBN. The CBN can only address issues that have to do with availability and circulation of money and credit control. It cannot address cost-push inflation, because it cannot provide energy, roads, transport. There are fiscal issues.”

    The economist urged the CBN to formulate policies that would boost industrial production and economic growth in view of the economic recession. He also called for co-ordination of fiscal and monetary policies to check the rising inflationary trend in the country.

    He pointed out that rising cost of food, transport and energy would reduce if the Federal Government created  fiscal policies with effective implementation to address the situation through increased investment in infrastructure and agriculture.

    The expert said speedy passage and effective implementation of the 2017 budget would stimulate economic activities.

  • Nigerian inflation rises to 18.48%

    Nigerian inflation accelerated for the 13th consecutive month in November, climbed to 18.48 per cent from 18.3 per cent in October, theNational Bureau of Statistics (NBS), has said.

    In an e-mailed statement yesterday. NBS said, prices increased 0.78 per cent in the month. The median estimate of 10 economists surveyed by Bloomberg was for inflation to accelerate to 18.6 per cent, a level last hit 11 years ago.

    Inflation accelerated on higher import costs, after lower prices and output of oil, led to foreign currency shortages. Also, dollar scarcity that persisted even after the apex bank removed a currency peg in June, and the naira lost 40 per cent its value to the dollar, contributed to the economy contracting for the first nine months of this year. The International Monetary Fund (IMF) expects it to shrink by 1.7 per cent for the year.

    Food inflation increased by 17.2 per cent, while the average price of gasoline climbed to N146.7 compared with N145.9 in October, according to the NBS. The index’s rise was mainly driven by increases in the prices of imported foods, meat, bread and cereals and fish, according to the report.

    The weak supply of basic food items such as rice also helped drive up prices, according to Ayodele Akinwunmi, head of research at Lagos-based FSDH Merchant Bank Ltd.

    “The foreign exchange rate is also very weak,” Akinwunmi said yesterday. “People are sourcing the more expensive dollars from the black market to import items.”

    The CBN continues to bar imports of 41 items it deemed non-essential from sourcing foreign currency from the official market, forcing them to buy dollars from the black market. While the naira gained 0.16 per cent to N315.75 against the dollar.

    Mindful of the slumping economy, the CBN left its benchmark lending rate at 14 per cent last month to fight inflation.

  • Inflation hits 18.3 %

    Inflation hits 18.3 %

    The National Bureau of Statistics (NBS) says Consumer Price Index (CPI) increased to 18.3 per cent (year-on-year) in October from 17.9 per cent recorded in September.

    The CPI, which measures inflation, is 0.48 per cent points higher from the points recorded in September.

    A report released by the NBS in Abuja yesterday noted that increases were recorded across almost all major divisions which contributed to the Headline Index.

    “Communication and Restaurants and Hotels recorded the slowest pace of growth in October, growing at 5.7 per cent and 9.4 per cent year-on-year respectively.

    “The Food Index rose by 17.1 per cent (year-on-year) in October, up by 0.47 per cent points from 16.6 per cent recorded in September.

    “During the month, all major food groups, which contribute to the Food sub-index, increased, with fruits recording the slowest pace of increase at 11.5 per cent,’’ it said.

    Price movements recorded by the All Items less farm produce or Core sub index rose by 18.1 per cent (year-on-year) in the month under review.

    According to the report, the Core Sub Index, which rose by 18.1 per cent in the month, is 0.4 per cent points higher from rates recorded in September, which was 17.7 per cent.

    “During the month, the highest increases were seen in housing, water, electricity, gas and other fuels as well as fuels and lubricants for personal transport equipment and education.

    “Significant price movement under the Core Sub-index was also recorded for clothing and footwear, which recorded an increase of 17.8 per cent year-on-year.

    “ The groups with least growth pace recorded in October were communication (5.7 per cent), restaurants and hotels (9.4 per cent) and recreation and culture (10.3 per cent).’’

    On a month-on-month basis, the report said that the Headline Index rose by 0.83 per cent in October, higher from the rate recorded in September (0.81 per cent).

    “The Urban Index rose by 19.9 per cent (year-on-year) in October from 19.5 per cent recorded in September and the Rural Index increased by 16.95 per cent in October from 16.4 per cent in September,’’ it stated.

  • Recession, inflation squeeze Nigerians

    Recession, inflation squeeze Nigerians

    On a Thursday afternoon, Patience Michael gathers her children into the living room of their two-room home for prayer time and Bible reading. Her 12-year-old daughter reads a passage in a clear voice.

    Michael, 33, watches her daughter closely. The girl is one of the best performing pupils in her public school. But Michael may not have the fund to pay for another school term for her daughter and three other children.

    “Now that the economy is like this, it’s not easy to provide many things for our children like school fees, clothes, feeding and house rent, because now there’s no gain in my business,” she says.

    Michael is a market woman, among millions in Nigeria, who make a living in Nigeria’s vast informal sector.

    Profits down

    For seven years, she’s been selling local food products in front of her house, in a neighbourhood of Abuja. She sells tomatoes, fresh peppers, palm oil, greens, grounded spices and crackers. But these days, she’s barely making a profit.

    The yearly inflation rate is at 17 per cent– the highest in 11 years. “It was never this bad,” she says. “Many things are very costly in the market. We’re not making any gain.”

     High cost of food

    Africa’s largest economy entered a recession last week and Nigerians are feeling the pain. Market women are suffering under the soaring prices of local food products.

    The recession is the result of several things – attacks in the Southsouth that reduced oil production, a drop in world oil prices, and a shortage of foreign currency. Also, the removal of government subsidies on fuel means transportation for farmers and agricultural produce are more expensive.

    Nigeria has not experienced an economy this weak in 20 years, and no one knows how long the recession will last.

     Weak currency

    Mama Emmanuel is a popular seller in her community and the leader of a local market women’s association. She blames her financial woes on Nigeria’s weak currency, the naira.

    “Our currency is very, very poor. Being the giant of Africa, what we are seeing in our currency is not what we’re supposed to have,” she says.

     

    Her storefront neighbour, Justina Agu, chimes in using pidgin English:“If you take some money go market buy something, before you know it, money don finish. Only two things that you buy,” she says, while chopping up greens for a customer. “Make President Buhari do something so that things will come down.”

    Inflation is squeezing customers too. They say they go to the market and leave with very little.

     ‘Everything is just so hard’

    “And you expect me to eat like three times in a day? I’ll just be eating like two times in a day so that we’ll minimise and the next day, we’ll continue because there’s no money,” says Godwin Amaana, a taxi driver, who stopped inside a market to buy a plate of hot lunch.

    “Everything is just so hard,” he says. “We don’t know what is happening.” Advocacy groups are working overtime to figure out how to pressure the government to take action.

    “Market women are in a vulnerable position because they don’t have access to credit. A woman provides a lot of the time for her immediate family that is because even the man, tendencies are he already lost his job,” says Salaudeen Hashim, a senior program officers at the Abuja-based Civil Society Legislative Advocacy Centre.

    “It is going to be counterproductive for the country not to create an emergency around the economy as a matter of fact now.”

    • Source: VOA

  • Farmers seek policy tightening to tackle inflation, others

    Federation of Agricultural Commodity Associations (FACAN) President, Dr. Victor Iyama, has called for a comprehensive policy package that will help the exchange rate stabilise, foreign reserves replenished, and inflation reduced.

    In an interview, he noted that there was need for the government to improve the effectiveness of the macroeconomic stabilisation package to enable Nigerians have confidence in economic management.

    According to him, restoring macroeconomic stability is the immediate priority, but addressing causes of high inflation requires greater efforts on structural reforms.

    He added that agriculture can play a key role in the economic growth.

    For this to help, he said the sector needs restructuring to develop a more vibrant and diversified rural economy with sustainable agricultural growth, high value creation, food safety according to international standard, higher competitiveness and farmer income, and technology-intensive agriculture.

    According to him, there is need to  expand agricultural production by  improving seeds, building irrigation works, more efficient markets, and mechanisation and roads.

    He underlined the importance of investment in rural infrastructure, to increase agricultural productivity, rural development and growth, adding that these would help the government drive the sector’s growth.

    He explained that feeding the nation’s growing population requires targeted investments to unleash the productive potential of the agriculture, provide incomes and food.

  • Fighting inflation, naira woes with interest rate hike

    Fighting inflation, naira woes with interest rate hike

    Since the Central Bank of Nigeria (CBN) raised the benchmark for interest rate from 12 to 14 per cent at the last Monetary Policy Committee (MPC) meeting, the decision has been generating criticisms from the industrial and political circles. But to financial sector analysts, the economy is better-off with lower inflation rate, improved foreign capital inflows and stable naira, which are the apex bank’s targets. The bank believes its tightening policy will have minimal impact on growth, writes COLLINS NWEZE. 

    Interest rate is the price that consumers of money pay and is at the prerogative of the Central Bank of Nigeria (CBN) to determine it without external interference.

    The independence of the apex bank in global economies is sacrosanct. And it remains the exclusive right to determine interest rate and monetary policy directions of the country.

    Basically, it remains part of investors’ confidence to see that the CBN has substantial autonomy, especially at a time the country is in dire need of Foreign Direct Investments (FDIs).

    The Monetary Policy Committee (MPC) met on July 25 and 26 to review the fragile global and domestic economic and financial conditions during which the Monetary Policy Rate (MPR), which is the benchmark interest rate was adjusted from 12 to 14 per cent. The CBN’s argument for that decision was that the objective of price stability was preeminent and there was a need to keep inflation expectation lower.

    The MPC evaluated the global and domestic macroeconomic and financial developments in the first six months of and the outlook for the year’s second half.

    It noted that most of the conditions undermining domestic output growth were outside its purview. It nonetheless, hopes that the deregulation in the downstream petroleum sector and the liberalisation of the foreign exchange market would help bring about the much-needed relief to the economy.

    The MPC noted that the level of money market interest rates largely reflected the liquidity situation in the banking system during the period under review.  The average inter-bank call rate, which stood at 20 per cent on June 17, closed at 50 per cent on July 15. The increase was attributed in part to the newly introduced foreign exchange framework and the mop-up of naira liquidity due to increased sale of foreign exchange (forex) by the CBN.

    Considering the high inflationary trend which has culminated into negative real interest rates in the economy; the MPC noted that it was discouraging to savings. Members of the committee also noted that the negative real interest rates did not support the recent flexible forex market as foreign investors attitude had remained lukewarm, showing unwillingness in bringing in new capital under the circumstance.

    The members further noted that there existed a substantial amount of international capital in negative yielding investments globally and Nigeria stood a chance of attracting such investments with sound macroeconomic policies.

    They consequently concluded that an upward adjustment in interest rates will, besides confirming the bank’s commitment to price stability, also shows its desire to gradually achieve positive real interest rates. Such a decision, it was argued, gives impetus for improving the liquidity of the forex market and the urgent need to deepen the market to ensure self-sustainability. They believed interest rate hike would boost manufacturing and industrial output, thereby stimulating the desired growth in the local economy.

    The members therefore increased the MPR, which is the benchmark interest rate by 200 basis points from 12 to 14 per cent. That singular decision has earned the CBN strong criticisms from the political, legislative and real sector operators.

    Faulting the CBN decision, Kaduna State Governor Nasir el-Rufai warned that the government might be forced to intervene and reduce the MPR through legislation.

    El-Rufai, who spoke at a forum organised in Abuja by Women in Business, a non-profit making women advocacy organisation, said that the high interest rate prescribed by the apex bank was one of the major reasons for the massive job losses across the country.

    He explained that while inflation in the United Kingdom (UK) was between seven and eight per cent, the lending rate was about one per cent, insisting that the theory that the rate of interest must always be above the inflation rate did make sense, noting that the country could always decide the interest rate that would stimulate business activities.

    He said: “Only traders and drug dealers can make money at this interest rate. I have said it before and I will repeat it again, unless the central bank and the banking system make a conscious decision to bring interest rate down, one day we would legislate on it.”

    But the Director-General of the Lagos Chamber of Commerce and Industry, Muda Yusuf, disagreed with the governor, saying that nobody can force the CBN to cut interest rate.

    “Making political statement to force CBN to cut interest rate is not right. The CBN can be persuaded using logical arguments on why lending rate should be lower,” Yusuf said.

    The LCCI chief urged the government to bring down the cost at which it borrows through Federal Government of Nigeria (FGN) Bonds and T-Bills.

    Agreeing that the inflation rate was worrisome, he said manufacturers were already facing huge burden especially with the high energy costs.

    “I think the CBN wants to bring inflation down. We cannot determine exchange rate but when it comes to monetary policy; it is the prerogative of the CBN. It is the CBN’s role to fix interest rate and it must be allowed to do so,” he said.

    Also, former Executive Director, Keystone Bank Limited, Richard Obire, said the apex bank of every country should be independent because foreign investors look at the monetary policy of the central bank in making investment decisions.

    Obire said: “It is part of investors’ confidence to see that the CBN has substantial autonomy. If the independence of the CBN is threatened, it will send the wrong signal to the investment community. It indicates that monetary policy is dictated by those close to government. However, people can voice their opinions on whether the interest rate is high or low, but cannot force the hand of the CBN on what decision to take.”

    According to him, the interest rate in the country is in reality, high, explaining that interest rate is the price that consumers of money pay.

    He said: “Consumers of money are those who borrow for industrial consumption, to buy equipment, land and other production materials to sustain productive activities within the economy.

    “If the interest rate is too high, as it is in Nigeria, then productive agents will not be able to produce. But when inflation rises, the CBN will raise the price of accessing money to moderate the inflation pressure.”

    He said the government should give priority to agriculture and domestic production loans, with such loans accessed at single-digit interest rate while luxury items should get loans at market prices.

    “In every economy, there are borrowers and savers. I think the CBN is also trying to ensure that there is incentive for savers. By raising interest rate, the CBN wants interest rate to be positive for savers,” he said.

    The rise in inflation rate, Obire said, was caused by the devaluation of the naira, impact of fuel price hike, electricity and diesel, among others. It has however, made more money available to the government, which should be spent to reflate the economy.

    In the same vein, the House of Representatives has called for the establishment of Financial Services Commission (FSC) comprising of the monetary and fiscal authorities just as it called for the review of high interest rate.

    The Chairman of the House Committee on Banking and Currency, Jones Onyereri, who made the appeal at the end of the committee’s oversight visit to the Lagos Office of the CBN, said the the FSC establishment became imperative to reduce high interest rate on government securities and reduce domestic borrowing.

    Onyereri stated: “That is why we advise CBN to work with the Ministry of Finance to find a way of reducing the level of domestic borrowing. I think that would also help in respect to the reduction in the interest rate. I think they should be able to work out all these and that to improve our economy.”

    The committee also expressed worries over the impact of the hike in the MPR on the Small and Medium Enterprises SMEs).

    Onyereri said: “We were a little bit worried because of the increase in the MPR. We believe as a committee that that was not the best of decisions. But having heard from the CBN, we still want to tinker on what led them to come out with that decision because, for us, we were looking at the bigger picture of still trying to grow the SMEs and the only way to grow the SMEs is to make credit accessible to them.

    “But making credit accessible to them will not work out with very high interest rate. But we believe along the line, we will be able to create a perfect balance.”

    CBN’s policy direction

    Although tight monetary policy stance has remained largely predominant since November 2011, with MPR hovering between 11 and 14 per cent, the recent policy thrust of the CBN suggests the aggressive nature of tightening for which a number of criticisms have been generated from trade and industrial circles as well as the political sphere.

    Besides, shorter term rates in the secondary fixed income market have adjusted upward to 15.7 per cent on the average from below 12 per cent in May 2016 with discount yields on 364-day T-bills instrument trading as high as 18 per cent.

    From June, N1.3 trillion has been mopped up via Open Market Operation (OMO) auctions by the CBN, reports from Afrinvest West Africa Limited, an investment and research firm confirmed.

    The figure was N40 billion short of total value of auctions all through the first half of 2016, and was in line with the apex bank’s aggressive effort to push interest rates higher and attract foreign capitals namely Foreign Portfolio Investment (FPI) and FDI into the economy. Such foreign capital was expected to reduce external sector pressures and support the stability of the domestic economy.

    Managing Director, Afrinvest West Africa Limited, Ike Chioke, explained that for operators in the manufacturing sector, having been on the receiving end of a weakened consumer spending power and forex shortages constraining demand and stifling profitability, the prospect of a tighter monetary policy and its consequences on borrowing cost and consumer spending decisions have worsened the challenges facing the sector.

    The industrial sector is already in a five-quarter long recession. Manufacturing Purchasing Managers’ Index (PMI) has been below 50 points – the threshold separating activity expansion from contraction – since the beginning of the year.

    Yet, yields (15 per cent) at the shorter end of the sovereign yield curve prior to the July MPC meeting were already reading above core inflation (policy preferred measure of price changes) which was 13.3 per cent in June.

    Nigeria’s headline inflation increased by 16.5 per cent in June from 15.6 per cent in May, as the rate continued to rise for the fifth consecutive month.

    The National Bureau of Statistics attributed the 0.9 per cent increase to a rise in energy costs, imported food items and related products.

    During the period under review, the food index rose at a faster rate of 1.4 per cent, month-on-month due to increase in the prices of meat, vegetables and cereals.

    Chioke believes that many of the factors driving inflation are structural and could moderate next year on base effect. Nonetheless, two arguments could still be made to justify the aggressive tightening.

    He also thinks that the objective of stabilising rates in the forex market and closing the spread between interbank and parallel rates are yet to be achieved since the move to a liberalised naira system began.

    At the Interbank spot market, the naira closed at N316.55/$1 on August 19, 20.3 per cent discounts to parallel market rates and also higher than 12-month T-bills discount yield of 18.1 per cent.

    To him, the implication is that the naira could be sold in the spot market to earn a better return relative to risk free assets such as T-Bills. This suggests two things – it is either the exchange rate has not been appropriately priced in the interbank market, or that the interest rate does not compensate for exchange rate risk.

    Chioke said: “The CBN appears to be comfortable with the second explanation hence the gravitation towards aggressive liquidity tightening to force shorter term rates higher and attract foreign capital.

    “To compensate for the forex risk, the CBN’s forex futures contracts are being priced below market rate while the apex bank continues to intervene in the forex spot market to guide naira trading band.

    “Despite the negative impact of higher interest rate on consumer and real sector investment decisions, the economy appears to be a lot more sensitive to forex stability than it is to increase in interest rate.

    “The robust Gross Domestic Product (GDP) growth figures recorded in the last era of aggressive policy tightening between 2011 and 2012 further supports this. This explains the willingness of the CBN to go for tightening policy to attract portfolio inflow, with the expectation that feedback on growth will be limited.”

    He noted that engendering investor’s confidence in the economy by coordinated and consistent fiscal and monetary actions is much more important in ensuring a fair pricing of exchange rate.

    Chioke said: “The monetary policy might however remain tight in the shorter term but we expect a more accommodative regime before second half of next year.

     

    T-Bills rate/naira exchange rate

    Investors continue to display higher appetite for shorter term treasury instruments due to higher attractive yields relative to longer tenured instruments. Average T-bills rate opened last week at 17 per cent, rose as high as 17.7 per cent but eventually closed the week at 18.1 per cent.

    The exchange rate remained pressured last week amid liquidity constraint. At the interbank, the exchange rate hovered around N317.50 to the dollar while in the parallel market, the exchange rate closed flat week-on-week at N397 to dollar.

    In the futures market, the Over-the Counter Forex Futures contract calendar as at last Friday showed the value of open contracts at $2.2 billion from $1.7 billion in the previous week. The April 26 2017 futures instrument remains the most subscribed with the value of open contracts settling at $706.25 million, currently trading at N260.

    Analysts insist that the foreign exchange market will remain pressured in the interim, especially at the parallel market, until sizeable amount of forex flow into the system.

    But in furtherance of its efforts to improve activities in the currency market, the CBN had last week, increased the sale of forex to a single Bureau De Change operator from $30,000 a week to $50,000, but market is expected to remain driven by the dynamics of demand and supply this week.

  • ‘Nigeria’s inflation rate may hit 17.35%’

    The National Bureau of Statistics (NBS) is expected to announce the sixth consecutive spike in inflation rate next week, according to analysts at FSDH Merchant Bank.

    In a preview of the inflation report expected to be released on August 18, 2016, analysts at FSDH Merchant Bank said year-on-year inflation rate could rise to 17.35 per cent for the month of July, from 16.48 per cent recorded for the month of June 2016.

    According to analysts, the expected increase will come from the increase in the prices of food items and other non-food items as a result of the depreciation in the value of the naira.

    “Our analysis indicates that the value of the naira depreciated at the inter-bank market and the parallel market by 11.89 per cent and 6.63 per cent respectively in July 2016. The Naira lost N38.19 and N25.00 at the inter-bank and parallel market to close at $/N321.16 and $377 respectively as at the end of July. The depreciation recorded in the exchange rate between the two months would put further pressure on domestic prices,” FSDH Merchant Bank stated in a preview obtained at the weekend.

    Analysts said the prices of food items monitored in July 2016 increased compared with June 2016 with prices of yam, onions, sweet potatoes, palm oil, vegetable oil, garri, Irish potatoes, rice and fish rising by 28.7 per cent, 17.78 per cent, 10 per cent, 8.89 per cent, 7.94 per cent, 5.56 per cent,  4.55 per cent, 3.7 per cent and 1.85 per cent respectively. The price of tomatoes, however, fell by 27.34 per cent while the price of beans remained unchanged.

    “Our model indicates that the price movements in the consumer goods and services in July 2016 would increase the CCPI to 204.61 points, representing a month-on-month increase of 1.45 per cent. We estimate that the increase in the CCPI in July will produce an inflation rate of 17.35 per cent,” FSDH stated.

  • Inflation hits 10-year high at 16.5%

    Nigeria inflation rose to 16.5 per cent in June, highest in over a decade and the fifth monthly increase in a row, data from National Bureau of Statistics showed.

    The inflation rate increased to 16.5 per cent from 15.6 in May, the highest rate since October 2005, according to data on the Central Bank of Nigeria’s (CBN’s) website.

    The rise reflected higher prices for electricity, transport and food, a separate index for which rose to 15.3 per cent from 14.9 per cent in May, the NBS said. “In June, the consumer price index which measures inflation continued to record relatively strong increases for the fifth consecutive month,” it said.

    Nigeria has seen revenues plunge with oil prices, with pressure on the naira helping to fuel inflation. The naira hit 295.25 in thin trade, a month after the CBN caved in to months of pressure to remove its currency peg and effectively devalue the unit in response to falling prices for oil.

    Prices rose by 1.7 per cent in the month. The median of seven economist estimates compiled by Bloomberg was for inflation to quicken to 16.2 per cent.

    Nigeria imports at least 70 per cent of its refined fuel, despite pumping 1.6 million barrels of crude a day in June according to the International Energy Agency, and faced fuel shortages as retailers struggled to get foreign currency to buy product during a 15-month naira peg that was removed last month.

    The currency’s official exchange rate weakened to more than N280 per dollar, compared with the fixed rate of 197 to 199, and the naira trades at around N360 on the black market, increasing prices for consumers. ”Inflation will continue rising because the driving factors are still there, but there should be a slowdown in the subsequent months,” Babajide Solanke, an analyst at Lagos-based FSDH Merchant Bank Ltd., told Bloomberg. “Inflation may not necessarily cause monetary policymakers to increase rates, because that will hurt growth. They may choose to use other monetary instruments to tighten liquidity.”

    Food prices rose 15.3 per cent in June from a year earlier, compared with 14.9 per cent in May. The highest increases were in the costs of fish and meat, fruit and vegetables and bread and cereals, the statistics office said.

  • June inflation to fall marginally to 15.5%

    June inflation to fall marginally to 15.5%

    •MPC meets July 25

    After a rise in headline, Nigeria’s economy may be entering an era of disinflation or declining rates of inflation, with June figure expected to decline to 15.5 per cent from 15.5 per cent in May.

    Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, who disclosed this, said: “We are projecting inflation in June to drop from 15.6per cent to 15.5 per cent. If this estimate turns out to be accurate, it will raise some fundamental questions as to the direction of inflation and possible level of interest rates in the money markets.”

    Rewane said headline inflation had almost been a loose cannon, defying most rules of economic gravity and logic. The root cause of the near hyper inflation rate, he said, can be traced to supply shocks at-times attributable to artificial scarcity compounded by uncertainty in the foreign exchange (forex) markets.

    For him, the  question therefore is whether this drop in inflation is a blip or a point of inflection.

    “Economic history has shown that disinflation (a period of declining inflation) is usually a result of adaptive expectations. The theory of adaptive expectations assumes that people form their expectation of future inflation on the basis of previous and present rates of inflation and gradually change their expectations as experience unfolds. “The theory was advanced and popularised by Milton Friedman, the Nobel economist from the University of Chicago,” he said.

    According to Rewane, this theory is applicable in Nigeria today because of the price trend since February. Consumers increased their demand for products out of unavailability and fear that prices will continue to skyrocket. But by April through May, aggregate demand curve had shifted inwards because of the income constraints.

    “This coincided with the month of May’s subsidy removal (slashed purchasing power) which altered consumer behavior. The game changer however was the new exchange rate policy which effectively reduced disposable income by 40 per cent.Therefore in spite of perceived scarcity and cost pressures, consumer resistance became the spur for the adaptive expectations theory to take sway in Nigeria,” he said.

    He explained that looking at consumer price movement, the anecdotal evidence shows that more price elastic commodities hit a brick wall and started declining in June.

    “Tomatoes, maize and rice moved slower. Price inelastic commodities like beans remained flat. One outlier product is the price of diesel which has increased by almost 100 per cent from 107 per litre in March to N210 per litre presently. This is mainly because of the abysmally low power output from the national grid, which has pushed demand to record levels. The impact of this high diesel price is pushing distribution and transportation cost to stratospheric levels. We have also seen a sharp spike in the prices of kerosene and cooking gas.

    “These are all scarcity propelled because importers switched from kerosene and diesel to PMS (premium motor spirit). We are now seeing a swing to the end of the product pendulum again. We expect the price of diesel to crash in August back to the N120-N130 per litre levels,” he added.

    He said the Monetary Policy Committee (MPC) is scheduled to meet on the 25th -26th of this month. They will be closely monitoring the inflation data. A lower inflation number will ease the pressure on the policy makers.

    “However, a precipitated move such as lowering rates is an unlikely outcome at this meeting. The market is still digesting the impact of the N1.3 trillion debit for the $4.02 billion forward sale. The macro-prudential risks arising from the regulatory action against the Board of Skye bank is leading to a flight for safety/quality banks. This has led to a further segmentation of the industry along the lines of perceived risks. In aggregate, we see an upward shift in interest rates move out of the risk mitigation attitude of the market than as a result of the inflation data,” he said.