The Nation Newspaper

Tag: Inflation

  • Inflation to drop further to 7.8%

    Inflation to drop further to 7.8%

    The Central Bank of Nigeria (CBN) yesterday reviewed the timeline for utilisation of dollars purchased from autonomous or interbank market from 48 hours to 72 hours.

    In a circular to authorised dealers, titled: Daily Foreign Currency Trading Positions of Banks and Period for Utilisation of Funds, signed by Mrs. O.L Ahuchiogu for CBN Director, Trade & Exchange, the regulator explained that the letter is in furtherance of December 18, 2014 circular on the matter.

    Accordingly, she said that authorised dealers are required to maintain 0.1 per cent as maximum open limit of their shareholders’ funds (SHF) unimpaired by loses as foreign currency trading position at close of each business day.

    Mrs. Ahuchiogu said that the implementation of the policy is with immediate effect. “Further to the circular of December 18, 2014, authorised dealers are hereby notified that the daily foreign currency trading positions of banks have been reviewed with immediate effect. Also, banks required to utilise funds purchased from the autonomous or interbank foreign exchange market within 72 hours from the value date, failing which such funds must be returned to the CBN for re-purchase at the bank’s buying rate,” the circular said.

    Before now, banks were to maintain zero per cent of their shareholders’ funds as foreign exchange trading position as at the close of business day. The apex bank had warned that breach of the policy would attract sanctions.

  • Falling oil prices: Inflation to rise above 10 per cent

    With the falling oil  prices, insecurity  and focus on politics, the inflation rate is expected to rise above 10 per cent any moment.

    In a report made available to The Nation by Resources and Trust Company (RTC) Advisory Service, a private consulting firm in Lagos, Nigeria’s ranking in every assessment of competitiveness, doing business, governance or transparency have worsened dramatically in spite of improving macroeconomics and a larger economy.

    It read: “The most important concern for business will clearly be the falling oil prices and the implications for currencies.

    “Businesses may have to develop scenarios with reserves below $30billion; exchange rates reach N200/$; inflation rises above 10 per cent; and government deficits and relative austerity return,” the report said.

    The report, which was endorsed by its Senior Consultant/Chief Executive Officer,, Mr Opeyemi Agbaje said in addition to oil market volatility, global economic conditions are weaker than expected, and with geopolitical turmoil across the world, outlook projections in terms of global growth and financial stability must be more conservative.

    “We believe the rankings over-penalise for perceptions of insecurity and corruption, and reflect unannounced sanctions for anti-gay policies and the externalisation of domestic politics.

    “Capital market indicators have collapsed along with oil prices with year-to-date indices negative and bleak short term prospects. The saving grace may be that elections are early 2015 and thereafter a focus on fundamentals may return, global factors permitting.

    “In spite of all negative “noise”, growth remains strong and the economy is on course to 2014 GDP (gross domestic product) growth of 6.5 to7.0 per cent and significantly oil sector output growth turned positive in Q2 2014″.

    According to Agbaje, Nigeria is going into elections with significant oil market risks, severe fiscal and macro-economic implications; a worsening terrorist insurgency, deep ethnic, religious and regional divisions and significant levels of poverty, unemployment and ignorance.

  • Inflation rises by 8.3%, says NBS

    Inflation rises by 8.3%, says NBS

    The Consumer Price Index (CPI), which measures inflation, rose to 8.3 per cent in July 2014, from 8.2 per cent recorded in June.

    This is the fifth consecutive month of year-on-year increases in the headline index.

    According to the CPI report released in Abuja yesterday by the National Bureau of Statistics (NBS), the faster pace of price increases recorded in the headline index was as a result of an increase in multiple divisions that contribute to the headline index.

    It explained that between February and July, movements in food prices as observed by the Food sub-index have, mirrored the Headline index.

    NBS said in a statement, that the Food index edged higher to 9.9 per cent in July from 9.8 per cent in June, explaining that prices were pushed higher as a result of higher prices in the Bread and Cereals, Meats, and Fish groups, while the pace of the increase was weighed upon by slower increases in the Dairy, Sugar, jam, honey, chocolate and confectionery, Coffee, Tea and Cocoa groups.”

    After increasing at a faster pace for the previous three months, the report said the pace of price increases measured by the “All items less farm produce” or Core sub-index, eased in July.

    The statement reads: “Prices rose by 7.1 per cent (year-on-year), a full percentage point lower from the rate recorded in June. Slower price increases in the Alcoholic Beverages Tobacco and Kola, Clothing and Footwear; Housing Water, Electricity, Gas and Other Fuel; and many other divisions contributed to the muted increases in the Core sub-index.

    “On a month on month basis, price increases in the headline index eased for the second consecutive month. Prices increased by 0.65 percent in July, lower from a 0.77 per cent increase in June. The slower price increase of the Headline index in July were driven by a slower rise in all areas that contribute to the index.

    Urban prices (year-on-year) increased as a faster pace for the third consecutive month in July.

    “Prices edged higher to 8.5 per cent, up 0.1 percentage points from June. Rural prices have exhibited the same trend over the period, increasing by 8.1 per cent from 8.0 per cent in June.

    “On a month-on-month basis, the pace of increases in Urban prices eased in July, after advancing faster for two consecutive months. Urban Headline index increased by 0.70 per cent, 0.1 percentage points lower from June.

    The Rural All-items index rose at a slower pace by 0.60 percent in July, down from 0.74 percent in June.

    “The percentage change in the average composite CPI for the twelve-month period ending in July 2014 over the average of the CPI for the previous twelve-month period was recorded at 8.0 percent, unchanged from the average twelve month rate of change recorded in June 2014. The corresponding 12-month year-on-year average percentage change for the Urban index was 8.1 percent in July, unchanged in the previous month while the corresponding Rural index eased to 7.8 per cent for the Month of July.

    “As observed by the Food sub-index, food prices increased by 9.9 per cent (year-on-year) in July, marginally higher from 9.8 percent recorded in June. This is the highest price increased observed in a year, and an advancement in the pace of price increases for the fifth consecutive month. During the month, increases in Fruit, Vegetables, and Potatoes, Yam & Other Tubers groups contributed to the price increases.”

     

  • Rising inflation will not hurt equities market, says Rewane

    Rising inflation may not significantly influence the performance of the Nigerian stock market, managing director, Financial Derivatives Company (FDC), Mr Bismarck Rewane has said.

    Many analysts expected the inflation rate to rise in the next computation. Rewane’s FDC has predicted that inflation rate will likely increase marginally again to 8.3 per cent.

    According to FDC, the inflation forecast was based on the regression model of its analysts. If this forecast increase in inflation takes place, it will be the fifth monthly consecutive increase in the price level this year.

    In its latest economic bulletin, FDC said the projection of a further increase in the headline inflation figure would not hurt investors’ confidence in the equities market.

    According to the report, investor confidence in the stock market will remain unchanged because the status quo on monetary policy has not influenced a significant movement in the fixed income market.

    The report pointed out that the current investors’ sentiment and profit-taking transactions are possible incentives to drive the stock market performance in the near term.

    “The stock market in 2014 has only gained 1.65 per cent. In spite of earnings growth decline, the price earnings ratio has declined to 29.56 times from as high as 31 times. This means that there are a few bargains out there. The inflation numbers are unlikely to scare yield hungry investors from bargain hunting,” FDC stated.

    However, the report noted that while the increase in inflation rate might be marginal, the cumulative increase could become a cause for monetary policy concern given that in February 2014, the year on year retail price inflation was 7.7 per cent and will now peak at 8.3 per cent, up by 0.6 per cen.

    According to FDC, even though inflation rate is within the six to nine per cent target range, it will only be 0.7 per cent lower than the ceiling, a trend that should give the Central Bank of Nigeria (CBN)’s Governor a reason to look at the close relationship between M2 growth and the consumer price index (CPI).

    The CBN Governor is also expected to decompose money supply into the high powered component and other aggregates as the rate of inflation is already becoming part of the political agenda in what is likely to be a keenly contested election.

    “The Central Bank is watching the inflation rate closely because of the fact that rising inflation will seriously undermine the key objective of maintaining the value of the naira at current levels. The new CBN Governor has staked his reputation on his mission to bring down interest rates and thus impact employment indirectly. An increase in the inflation rate is likely to make the reduction of interest rates less imperative,” FDC stated.

    Notwithstanding, the report indicated that the exchange rate would remain stable as increased foreign reserves has placed the apex bank in better position to defend the currency.

    ‘’We do not expect any significant impact of the projected increase in inflation rate on the interbank market in August. However, it will make portfolio managers become jittery, since an increase in rates will de-press bond prices and could lead to diminution in value of their portfolios. But irrespective of the inflation numbers, we do not expect increased volatility in the money markets as our projection remains within the target band of the CBN,” the report stated.

  • Tame inflation shows Yellen’s Fed is not ‘behind the curve’

    Never mind all the overheated talk that Janet Yellen’s Federal Reserve is slipping “behind the curve” in containing inflation. Today’s cool consumer-price reading and the collective wisdom of the bond market are suggesting the Fed is amply ahead of that curve.

    One month’s consumer price index can’t tell the whole story of inflation risk, of course. But with June’s headline CPI arriving as forecast at 0.3 per cent – and the core measure (excluding food and energy) registering below expectations at 0.1 per cent – Yellen’s patience in projecting interest-rate increases, and her characterization of an uptick in inflation gauges early this year as “noisy,” are ratified.

    “Fed officials characterised the recent pickup in inflation as confirming their projections after nearly two years of weaker-than-forecasted aggregate price growth,” Bank of America Merrill Lynch economist Michael Hanson notes. After today’s data release, he adds: “The Fed is likely to remain patient in the face of the current modest inflationary trends, and not make a hawkish rush to the exit.”

    This is the kind of low-key observation that gets the conspiracy theorist, policy-skeptic contingent exercised. They like first to scoff at the idea of excluding the bump in gas prices from the inflation debate, as if it “doesn’t matter.” (And the “pain at the pump” angle did drive some headlines following the release Tuesday morning.)

    Gas prices matter to ordinary people in everyday life, sure. But the fact is, rising prices in commodity-based necessities act more as a drag on broad consumption than a driver of widespread cost increases. As this chart shows, periods with wide gaps between headline and core inflation do not tend to precede a general lift in inflation.

    Next, the policy dissenters insist the large amounts of bank reserves created by the Fed’s prolonged bond-buying efforts are sure to create some kind of messy inflationary outbreak. But it hasn’t happened yet and shows no real signs of occurring, aside from supporting some unknowable proportion of the ascent in risk-asset prices over the past few years.

  • June inflation hits 10-month high at 8.2%

    June inflation hits 10-month high at 8.2%

    Nigeria’s consumer inflation rose for the fourth straight month in June to hit 8.2 per cent, a 10-month high, driven by higher food prices, the National Bureau of Statistics (NBS) has said.

    It said food prices, the biggest contributor to the headline index, jumped 9.8 per cent year-on-year in June, after rising 9.7 per cent the previous month. “Prices were pushed higher as a result of higher prices in the bread and cereals, meats, fish, and dairy groups,” the NBS said in a statement.

    Reuters report showed that consumer inflation rose from eight per cent in May and had crept up from a five-year low of 7.8 per cent in October due to rising food prices.

    The Central Bank of Nigeria (CBN) said it wants to keep inflation between six and nine per cent this year and has a longer-term goal of reducing it to around five percent by the end of 2015.

    The apex bank plans to hold its monetary policy meeting next Tuesday to set interest rates and is sure to take rising inflation into account. Analysts expect rates to remain on hold at 12 per cent but say the tightening cycle could resume if the inflation outlook worsens. The statistics office said early in the week that it expects the economy to grow by at least 6.2 per cent this year following a solid first-quarter performance.

    Managing Director, Financial Derivatives Company Limited, Bismarck Rewane said the rise in inflation will not change the monetary policy stance of the CBN.

  • ‘Why Nigeria has high inflation rate LCCI’

    Nigeria’s   level of inflation remains significantly higher than its peers rising to over 8 per cent in the month of May says president, Lagos Chamber of Commerce and Industry (LCCI), Alhaji Remi Bello.

    He revealed that the nation’s annual average inflation rate of 8.5 per cent is higher than that of Africa, emerging markets and advanced economies at 5.8 per cent, 6.3 per cent and 1.4 per cent respectively.  On the reason for the high inflation rate, he said it is as a result of cost push that includes cost of operation, energy, cost of fund and fiscal regime of government.

    Other cost variables according to him includes high tariffs and government spending especially this era of election where there is high movement of funds from one point to the other.

    Bello spoke on Wednesday in Lagos at the unveiling of 2014 Second Quarter report on the economy. According to it is worrisome that the nation’s annual average of 7.85 per cent year to date is above the IMF’s projection of 7.3 per cent and those of its peers.

    He said though the foreign exchange market has been relatively stable with slight appreciation of the Naira witnessed only at the interbak and Buraeu De Change segments of the markets, the stability notwithstanding, he stressed concerns that increased yields and interest rate in the United States could have negative impact on capital flow into the country.

    In his words: ” Again, there is the risk of high domestic  liquidity which could exert sustained pressure on both the exchange rate and consumer prices, as well as accentuate the already high demand for foreign exchange, further depleting the country’s external reserves. At this time there is need  to acknowledge key risks such as increasing security threats in some parts of the country, expected fiscal spending towards 2015 general elections and associated demand pressure on exchange rate. The implication is that the interest rate would continue to remain high and continue to put pressure on operating costs in the economy.”

    The LCCI boss frowned at the depletion of the excess crude account from $38.72 billion in May to $ 37.2 in June, noting that value of a robust reserves lies in the confidence it inspires among investors especially foreign investors and international trading partners.

    Further depletion of reserves and the excess crude account could undermine investor’s confidence and could trigger capital with adverse consequences for the economy he added.

    He criticised  the face of between the CBN and the Bureau De change operators on the recent increase from $20,000 to N35 million deposit with the apex bank. He said: “Of what use is the new policy that intends to lock up N35 million operating capital without bearing interest.

  • Inflation rises by 8.0 per cent

    Inflation rises by 8.0 per cent

    May inflation rate rose to eight per cent from 7.9 per cent in April, report from National Bureau of Statistics (NBS) has said.

    Commenting on the figure, Head of Research, Standard Chartered Bank, Razia Khan, said although both food and core inflation are exhibiting the fastest month-on-month increases seen since January, the impact of earlier foreign exchange weakness appears not to have been as pronounced as we expected.  She said inflationary pressures are still relatively benign.

    “Nonetheless, there is evidence of upward pressure on prices.  The increase in the inflation index seen in every month since March, is a touch higher than the average for those months using the index rebased to 2009.

    “This does not signal an alarming degree of price pressure – it merely indicates that the trend in the coming months is more likely to be higher, rather than lower inflation,” she said.

    Khan said market conditions remain liquid, adding that overnight rates continue to hover near the lower end of the corridor.  The foreign exchange rate has exhibited signs of pressure, despite gains in the oil price related to events in Iraq. For now, local factors appear to matter more.

    “Given this, we remain wary of inflation risks. The rise in the oil price does not provide sufficient reassurance that Nigerian inflation will remain low and well-behaved.

    The amount of pre-election spending remains the key factor to watch.  Should market conditions exhibit signs of even greater liquidity growth, there may be a case for more CBN tightening in response,” she said.

    We expect inflation to continue to rise in the coming months, she said, adding that given the low base year-on-year, inflation was in single digits for all of 2013, helped by CBN tightening and favourable food price trends domestically.

    She said  a surge of upto 10 per cent may occur before  year-end.

  • ‘Inflation, interest rate stifle poultry growth’

    ‘Inflation, interest rate stifle poultry growth’

    The troubled poultry industry is not poised for a turnaround, the Vice-President (Agriculture) Association of Small Business Owners of Nigeria (ASBON), Mr Stephen Oladipupo,  has said.

    According to him, progress in the industry is stifled by inflation and high interest rate.

    Oladipupo said the sector has seen  difficult years, weighed by soaring feed costs and weak consumer demand.

    He noted that the big run-up in corn and soybean prices has brought the   industry to its kneels. The reason, he said, is  the cost of raising animals, adding that  feeds made mostly from corn and soybeans are now very expensive.

    Besides, he said there were too many variables which are beyond the control of industry players.

    Lagos Chapter Chairman, Poultry Association of Nigeria, Adedotun Agbojo, said the industry may collapse because of high cost of feeds, adding that this has reduced returns on investment.

    Because of the shortage of grains, by-products, oil cakes, prices of animal feeds have been on the rise, necessitating an increase in the cost of animal feeds to where most farmers are not able to sustain their products.

    Farmers, he said, were managing their farms at a loss and as a result, many have already started  reducing numbers, especially in poultry. Poultry feeds by their quality and price are some of  the major factors in determining the cost of poultry products, such as eggs, broilers and profitability of the poultry farm, he added.

    Farmers, he noted, have had to absorb the increases without being able to increase the price of a crate of eggs or chicken.

    He warned that if the trend persists, most poultry farms would have to reduce operations or close shop.

    Poultry feeds produced by commercial feed mills, he said, were handicapped by inadequate raw materials.

    He added that the increase in diesel cost by about 70 per cent has added to the problem.

    The Director-General Poultry Association of Nigeria (PAN), Mr. Onallo Akpa,  said though the industry contributes over 25 per cent  to the gross domestic product (GDP), many farmers were being  forced out of the business. He said: “Poultry producers who are still in business are operating below installed capacities and at a loss because of the high cost of basic raw materials for feeds.”

    He lamented  the electricity tariff, multiple taxation, high interest rate on lending and dumping of poultry products through smuggling which, he said is responsible for all kinds of diseases with attendant depreciating life expectancy.

  • February inflation may ease to 7.95%

    The inflation figure for last month would decline marginally to 7.95 per cent from eight per cent in January when the National Bureau of Statistics (NBS) releases the inflation data for last month this week, Managing Director, Financial Derivatives Company Limited, Bismarck Rewane has said.

    He said the expected figure remains a moderation in the headline inflation rate after remaining flat in December and January.

    “The reduction in price level is partly due to the post-festivities drop in purchasing power of consumers. It is surprising that even after the redemption of the Asset Management Corporation of Nigeria (AMCON) bonds of N1trillion in December, the transmission effect on prices is relatively mute. Both the food and non-food basket prices are expected to slide,” he said in an emailed report.

    Also, FDC’s urban inflation survey in February showed that urban inflation moderated by 0.94 per cent to 8.63 per cent. Both baskets of the food and non-food items moved in the same direction with the food basket declining by 0.87 per cent to 8.12 per cent and the non-food basket by 0.97 per cent to 8.89 per cent.

    Rewane said the movement in inflation was influenced mainly by seasonality, rather than cost-push or demand-pull effects, adding that the threat to price stability is still potent, especially in view of the potential for exchange rate transmission on imported finished goods.

    Other risks from the 50 per cent hike in gas prices for power generation and the implementation of the new automotive policy remain.

    He added that market response to the inflation announcement is likely to be in two phases.

    He said: “The initial impact will be neutral and nerve-soothing. He added: “This is because of the belief that the Monetary Policy Committee (MPC) is unlikely to take draconian moves in a declining inflation environment.

    “The MPC will be more anticipatory and strategic in its deliberations under a care-taker leadership. We expect the MPC to be very aggressive in its mopping up and push the Cash Reserve Ratio (CRR) to the maximum level. This will be complemented by tweaking the private sector CRR from 12 to 15 per cent.”

    Rewane explained that all other markets will react in line with their interest rate sensitivity or convexity, adding that most bond traders and other fixed income securities holders have already priced in an interest rate increase into their sentiments and portfolios.