Analyst says Inflation may Recede to 7.66%, Warns of Possible Spike in 2014

Inflation rate, the average rate at which the prices of goods and services change is expected to slow further in November when the National Bureau for Statistic (NBS) releases the result next week. Analysts however warn that the rate could spike in the first quarter of 2014.
The headline inflation data for November 2013 is scheduled to be announced on Tuesday December 17. This is one day before the last forex auction for 2013 and at a time of liquidity saturation in the interbank and money markets. The market has opened with an average long position of N341 billion in December despite the Cash Reserve Ratio (CRR) debits. 
Bismarck Rewane, chief executive of Financial Derivates Company (FDC)  also said that it is noteworthy that the common year end of all Nigerian banks and financial institutions is only a fortnight away.
“Our forecast is that the November headline inflation is expected to decline to 7.66 percent (±0.07) from 7.8 percent recorded in October due to stability in the prices of major consumer goods. Agricultural commodities and supply to the markets remained relatively high which formed the basis of our forecast”, said Rewane in his current report. 
He explained that the increased demand for rice caused by speculation and temporary scarcity influenced the increase in its price to N10,000 per bag from N8,500 the previous month and N8,000 in November 2012. However, prices of other items in the food basket remained stable.
“Just as the Central Bank of Nigeria (CBN) has set a target of 6-9 percent in 2014, Consumer Price Index (CPI) watchers are going to be more scrutinizing of the CBN and the Monetary Policy Committee (MPC) on its monetary policy direction”, he said. 
However, one very important distinction now emerging in Nigeria is the greater emphasis being placed on anticipated rather than historical inflation in the scheme of things. In other words, anticipated inflation is more important than historical inflation or the trend of the past. 
This distinction is going to be more apparent in 2014, because of the potential confluence of major exogenous and domestic shocks that could force policy makers into involuntary adjustments to align resources with economic expectations. 
Therefore, as a mainly oil and gas dependent economy, a shift in the global oil equilibrium and a reduction in prices will inevitably force Nigeria to an adjustment in policies and instruments which will alter the economic well being of Nigerians profoundly.
Rewane said, although inflation rate for November 2013, which will be announced on Tuesday, December 17, is like- ly to be at 7.66 percent, making it again one of the lowest inflation rates in Nigeria since 2008, there are underlying inflation threat in 2014.
“However, whilst the rate will make for screaming headlines for the newspapers, the more granular and analytical perspective will reveal that the underlying inflationary threats are more potent in 2014 than it has ever been, he said. 
Therefore the country and the markets should brace up for a spike in inflation in 2014 and the involuntary monetary adjustments that will accompany the revenue shortfalls associated with oil market gyrations and the side-effects of the elaborate oil bunkering enterprise. This will include but will not be limited to a depreciation of the naira in the currency markets.

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