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Three reasons why inflation is likely to rise in November & what it means for you

inflation (1)

The prices of goods and services in Nigeria have been on the rise since August following a controversial land border closure.

Currently, at 11.61 percent, a 17-month high, inflation is expected to go higher in November-and here’s why.

Seasonality

Historically, inflation usually rises at the end of the year, thanks to the festive season.

In November last year, annual prices increased by 11.28 percent or 0.02 points higher than in October 2018.

With the exception of 2017, 2014 and 2010 where inflation slowed in November and 2011 where it was unchanged, the last decade supports the view of higher price levels.

The reason inflation usually rises in the late months of the year is because people want to spend a lot at those periods, and (with goods not as many) this causes price to go up.

Border closure

The closure of the border has cut off supply of some staple food items including rice, poultry and tomatoes.

Food prices in October rose the fastest since April 2018 because of the limited availability of the items restricted from entering Nigeria from Neighbouring countries.

Because these items are highly demanded for in this period, it is expected that price for these items will rise, pushing food inflation up and ultimately overall inflation.

Insecurity

States in the food-producing middle-belt and northern regions have reported disruption to farming activities due to conflicts. This affects supply and ultimately drives prices north.

Economists at Access Bank Plc expects inflation to hit 11.9 percent in November 2019. This would be the highest since April last year.

Why rising inflation should matter to you?

Rising inflation puts more pressure on already weak purchasing power, as the same amount of money now buys less.

The benchmark interest rate might remain unchanged at 13.5 percent.

If inflation continues to rise further, it may also force the CBN to consider raising benchmark interest rate to compensate for any decline in real yields and keep foreign portfolio investors happy.