National July Inflation Set to Increase Again as Lagos Rate Declines Marginally

Analysts are convinced that the national July inflation figure will rise to 8.3 percent, even as they see that of Lagos state declining in the month of July.
Bismarck Rewane, Chief Executive Officer of Financial Derivatives (FDC) CompNy Limited said the  Nigerian rate of inflation is likely to increase marginally again to 8.3 percent. 
This forecast, he said is based on the regression model of their analysts. 
If this forecast increase in inflation takes place, it will be the 5th monthly consecutive increase in the price level this year.
Whilst the incremental rise is marginal, the cumulative increase could become a cause for monetary policy concern. 
In February 2014, the year on year retail price inflation was 7.7 percent and this will now peak at 8.3 percent, up 0.6 percent. Even though it is within the 6-9 percent target range, it will only be 0.7 percent lower than the ceiling.
Rewane said the trend will give the Central Bank of Nigeria (CBN) governor a reason to look at the close relationship between M2 growth and the CPI. He will also try to decompose money supply into the high powered component and other aggre- gates. The rate of inflation is already becoming part of the political agenda in what is likely to be a keenly contested election.
The Central Bank is watching the inflation rate closely because of the fact that rising inflation will seri- ously undermine the key objective of maintaining the value of the naira at current levels. The new CBN Governor has staked his reputation on his mission to bring down interest rates and thus impact employ- ment indirectly. An increase in the inflation rate is likely to make the reduction of interest rates less imperative.
He said the FDC Lagos urban inflation in July moderated to 8.53 percent, a decline of 0.85 percent from 9.38 percent. Both the non- food and food baskets declined. 
He explained that the disconnect between the national headline and our Lagos urban inflation is due to an observed one-month lag between the trends of both estimates. Notable decline in prices include pepper, yams, rice, building materials while the prices of beans and air fares increased. The de- cline in the indices is attributable to the commencement of harvest as well as the decline in demand for building materials.
In the rest of SSA, the countries that are facing increasing inflationary pressures are Ghana (15 percent) and South Africa (6.6 percent). Ghana has taken economically draconian measures like sharply reducing subsidies on petroleum and power. 
It has finally succumbed to reality by approaching the IMF for a programme to address persistent pressure on the external balance. The structural adjustment programme will force Ghana to trim its fiscal spending and bring it to a more acceptable level than its current 10.1 percent of Gross Domestic Product (GDP). In South Africa, the SARB on July 17, pushed up the benchmark rate by 25 basis points to 5.75 percent p annum.
He however said the 2014 harvest season is expected to dampen the upward trend in the headline inflation. However, threats to our outlook for August remain in the horizon from the increased election spending, as political campaigns intensify, as well as fiscal spending to curtail insurgency in the North.

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