Ahead of the release of inflation figures on Thursday by the National Bureau of Statistics, the FSDH Research, an arm of the FSDH Merchant Bank Limited, is expecting inflation rate to rise to 11.69 percent in December 2018 from 11.28 percent recorded in November.
This represents a monthly increase of 0.41 percent between the two months and the highest monthly increase since November 2016. The expected increase in the inflation rate will reflect higher price increases within the food and non-alcoholic beverages division and other non-food items due to end-of-year and festivity purchases.
An analysis by FSDH Research indicated that the value of the Naira depreciated at the Nigerian Autonomous Foreign Exchange (NAFEX) market in December 2018, while it appreciated at the parallel market. The value of the Naira depreciated marginally by 0.01 percent at the NAFEX market to close at US$/N364.18 from US$/N364.16 in November, while it gained 0.14 percent in the parallel market to close at US$/N365.00 from US$/N365.50 in November 2018.
The value of the Naira appreciated at the parallel market as a result of newly introduced special ‘Thursday sale’ to Bureau de Change (BDCs) operators. The depreciation recorded at NAFEX between the two months under review increased the impact of foreign exchange on the prices of imported consumer goods in the domestic market.
The prices of food items as monitored by the firm in December 2018 moved in varying directions, leading to 1.00 percent increase in its food and non-alcoholic index. The Index increased year-on-year by 13.83 percent to 295.66 points, up from 259.75 points recorded in December 2017.
Also FSDH Research observed an increase in the prices of transport and housing, water, electricity, gas and other Fuels divisions between November and December 2018.
“We estimate that the increase in the Composite Consumer Price Index (CCPI) in December would produce an inflation rate of 11.69 percent”, the analysts said.
Despite the expected increase in the inflation rate in December 2018 and in 2019, FSDH Research believes the members of the MPC of the Central Bank of Nigeria will vote to hold rates at the current levels in January 2019. The most appropriate instrument to signal tightening at the moment in the face of fragile credit and economic growth is to use open market operations (OMO) to mop up excess liquidity.
