Inflation rate may hike to 12% in March-FDC

Due to incessant uncertainty surrounding the foreign exchange market, Financial Derivative Company Limited (FDC) has hinted that consumer prices are expected to remain high till April, while projecting an increase in the Nigerian inflation to 12.2 percent in March.

According to the FDC monthly research statement, there is a likely significant increase of 0.7percent in the March inflation figure to 12.1percent. This will be the third consecutive monthly increase this year. The month of March was unique as the fuel scarcity intensified and higher transport costs filtered through to commodity prices such as beans, tomato and pepper.

“While our initial time series analysis projected an increase of 0.4%, the severity and longevity of the prevailing fuel scarcity has distorted price levels. Our retail study showed that prices of many consumer goods have remained stubbornly high and in some cases increased in spite of consumer resistance”, it stated.

The factors that are contributing to the spike in inflation include seasonality, cost push factors, money supply and forex shortage. These factors while transient in nature are becoming more permanent. As these factors grow increasingly embedded, they are making consumers panic. Anticipated inflation is more important because of the pass through effect of increased demand and expectations of higher prices on current prices.

While explaining impacts of a sustained level of high prices, FDC stated that the dichotomy between urban and rural prices may persist given the impact of rising transport costs and exchange rate pressures on urban prices. The price of diesel, a major determinant of food transportation costs, has increased to N130 per litre.

“As the exchange rate uncertainty continues, consumer prices are expected to remain high. In addition, with fuel scarcity expected to persist till next month in spite of NNPC’s April 7 deadline, transportation costs will continue to be elevated. Therefore, we expect inflation to still remain in the region above 11percent.”