Fuel Scarcity: Transport Fares Soars 200%, Inflation Set to Spike

The lingering fuel crisis has further put pressure on already depleted wallets with transportation cost rising as much as 200 per cent across many parts of the country. The fallout will be the inflation rate, which has already risen to 2-year high at 8.7 per as at April 2015.
Bismarck Rewane, chief executive officer of Financial derivatives Company (FDC) Limited said, it rate, which measures the average movement in the prices of goods and commodity may rise further in June.
“The headline inflation rate is expected to increase further due to the lagged impact of the severe fuel scarcity in May. Transport fares recorded over 200 per cent increase in many parts of the country.
Rewane believes that following the instability caused by the scarcity and the need to build up the fiscal buffers, the Buhari administration is likely to eliminate the subsidy regime in the near term. This will cause an initial spike in consumer prices. However, the impact of the anticipated increase in the inflation numbers may be muted by a favorable harvest season in third quarter of 2015|”.
Analysts at FSDH Research added that the supply related problems of food products and the lack of full resolution of the security challenges in some parts of Northern Nigeria, as well as the devaluation of the Naira continued to put an upward pressure on the inflation rate. The inflation rate stood at 8.7 per cent in April 2015 from 8.5 per cent in March 2015.
The April 2015 inflation rate represents the highest inflation rate recorded since July 2013 and the fifth consecutive month of increase in the Headline Index so far.
The Food Price Index increased by 9.5 per cent in April 2015 (year-on-year), higher than 9.4 per cent in March 2015.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) at its May 2015 meeting noted that the uptick in inflationary pressures, in recent time, was largely traceable to transient factors such as high demand for transportation, food and energy, especially in the period around the general elections as well as the Easter festivities. It also noted the roles played by system liquidity and the pass-through effects of the recent depreciation of the Naira exchange rate.
“We estimate that the inflation rate would increase to 8.9 per cent in May 2015”, said the FSDH Research said.
An independent survey conducted by FDC Limited indicates that its Lagos urban inflation index increased to 12.37 per cent in May, 1.18 per cent from 11.19 per cent in April.
The FDC believes that, typically, there is a lagged positive relationship between the headline and the urban inflation rates.
The year-on-year (y-o-y) food and non-food indexes increased to 9.30 per cent and 13.92 per cent in May from 8.4 per cent and 12.64 per cent in the previous month respectively.
The prices of pepper, vegetables, sugar, transportation, cooking gas and kerosene were noted to have influenced the increase in the general consumer price level. Most traders noted that there was low demand as well as consumers’ resistance to price increases despite the impact of the fuel scarcity on logistics.
For Rewane, headline inflation in the country is likely to increase to 8.8 per cent from April’s 8.7 per cent.
“This will be the highest rate of inflation recorded in 2015, if this forecast proves to be accurate; it will also be the highest since the impact of the subsidy reduction in 2012. This modest rise in inflation is surprising given the prolonged fuel scarcity, heightened insurgency activities of Boko Haram and the impact of the planting season”, said Rewane.
The naira has been cumulatively devalued by 26 per cent since October 2014; however, prices have only increased by 8.7 per cent.
The reason for this modest increase in prices includes a general reduction in global commodities imported by Nigeria. These include wheat, sugar, rice and palm oil. The fall in commodity prices have helped neutralise the devaluation impact.
Another inflation mitigant has been the slowing growth in money supply which is now annualised 5.3 per cent, way below the annual target of 15 per cent.
Rewane also believes that consumer resistance to price increases is also playing a phenomenal role in keeping inflation muted.
The FBN PMI Index which shrank from 54 in April to 49.4 in May is evidence of inventory destocking by manufacturers and merchants. The PMI is a leading indicator of manufacturer’s view of market prices movement.
If the inflation rate jumps to 8.8 per cent as predicted, when taken together with the under/unemployment rate of 24.1 per cent will give Nigeria a misery index of 32.9 per cent. This will be the base line for judging the performance of Buhari’s economic policies in the near future.

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