Rewane forecasts inflation above 40% on updated price index

Bismarck Rewane, the managing director of Financial Derivatives Company, has projected Nigeria’s headline inflation to hit 44.51 percent on the reconstruction of the current basket of goods for measuring inflation. According to him, the current food and non-food inflation figures do not reflect the economic realities in Nigeria.

He made this assertion at the July 2022 briefing captioned: “Analysts Bemused, Markets Confused and Speculators Amused”, noting that the weights of the components in the basket for evaluating the periodic Consumer Price Index (CPI) ought to be reviewed every five years to reflect the changing households’ consumption patterns especially in the face of COVID 19 which altered spending patterns as well as Nigeria’s changing demographics.

Rewane further listed inflation drivers in Nigeria to include diesel and aviation fuel as diesel price alone has surged by 229.99 percent in the last twelve months. He cited a 25.51 percent growth in broad money supply, exchange rate pass-through which resulted in naira depreciation to the tune of 22.11 percent during the same period, as well as the seasonality effects. The naira currently trades at about N610/$ at the parallel market and N415.83 at the official I & E window.

“Broad money supply maintained its upward trend. FAAC disbursement down 9.51% to N656.6bn in May despite higher oil prices. Zero remittance from NNPC due to petrol subsidy payments. And higher energy costs are causing structural shift in demand”, Rewane said.

According to the National Bureau of Statistics (NBS), Nigeria’s headline and food inflation rates rose to 17.71 percent and 19.51 percent respectively in May 2022.

“The items in a country’s basket, and the weights assigned to the basket’s broad categories of goods and services, can tell us a lot about how the residents of that country live. They can reveal what consumers prioritize, or what they can rely on the state to provide, or what is distinctive about their particular national economies,” Amanda Shendruk and Samanth Subramanian, analysts with Quartz, said.

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“The differing weights reflect many things: cultural patterns, for instance, or levels of economic development. A country may tinker with the weights assigned to categories as well, to reflect changes in spending habits or the economy over time. The US and the UK review their baskets and the weights of categories once a year.”

On July 15, 2022, Nigeria’s data agency, the National Bureau of Statistics (NBS) will release new inflation figures for the country and many industry analysts are expecting NBS to announce higher headline and food inflation rates for June 2022, in view of the rising energy costs.

“I expect the headline inflation to move up in line with the recent trends, albeit at a decreasing rate. This is based on the premise of an increase in the prices of major inputs such as diesel and household consumables,” Moses Ojo, a Lagos based economic analyst, said.

“It is expected to be at a decreasing rate because of the baseline effect since the headline inflation number is year-on-year.”

The FDC’s proposed basket has a weighted average assigned to each of the components in the basket, with each weighted average reflecting the economic realities of Nigeria today, according to Rewane.

Food and non-alcoholic beverages was assigned a weighted average of 55.54 percent in the FDC’s basket in contrast to its current weighted average of 51.8 percent. Housing, water, electricity and gas was assigned a weighted average of 10.72 percent by FDC compared with its current weighted average of 16.734.

Clothing and footwear was assigned 4.53 percent weight average compared with 7.65 percent currently. Transport got 6.04 weighted average as against 6.508 percent currently; furnishing, household equipment was assigned 2.83 percent by FDC as against 5.03 percent currently, while education and health got 6.04 percent and 6.52 percent as against 3.944 percent and 3.004 percent currently respectively.

A government official who did not want his name in print agreed with the proposition of FDC that Nigeria’s inflation basket is due for reconstruction.

“Yes, it is true that Nigeria’s GDP and CPI are due for reconstruction. We are already working on that only because we are constrained by funding. Hopefully, by year end, the new composition will be unveiled”, the person said.

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