As the National Bureau of Statistics (NBS) releases its December 2018 inflation figures this week, leading research firms in the country, FSDH Research and Financial Derivatives Company (FDC), said in their forecasts at the weekend that the nation’s inflation rate for December 2018 would increase.
FSDH Research expects the December 2018 inflation rate (year-on-year) to rise to 11.69 percent from 11.28 percent recorded in November, while FDC in its bulletin predicts that headline inflation will increase to 11.37 percent in December.
FSDH forecast represents a monthly increase of 0.41 percent between the two months and the highest monthly increase since November 2016.
The expected increase in the inflation rate will reflect higher price increases within the Food and Non-Alcoholic Beverages division and other non-food items due to end-of-year and festivity purchases.
The NBS is due to release the inflation rate for the month of December on Thursday, January 17, 2019, ahead of the Monetary Policy Committee (MPC) meeting scheduled for January 21 and 22, 2019.
The Food Price Index (FPI) report that the Food and Agriculture Organisation (FAO) published for the month of December 2018 remained relatively the same as November 2018.
However, the World Bank has hinted about a possible increase in food prices in 2019 because of severe weather conditions. This may accelerate the inflation rate in 2019 in Nigeria.
The FAO notes that the decline in the prices of dairy and sugar in December were largely offset by the increases in cereal, meat and oils.
FSDH Research’s analysis indicates that the value of the naira depreciated at the Nigerian Autonomous Foreign Exchange (NAFEX) in December 2018, while it appreciated at the parallel market.
The value of the naira depreciated marginally by 0.01% at the NAFEX market to close at US$/N364.18 from US$/N364.16 in November, while it gained 0.14 percent in the parallel market to close at US$/N365.00 from US$/N365.50 in November 2018.
The value of the naira appreciated at the parallel market as a result of newly introduced special ‘Thursday sale’ to Bureau de Change (BDCs) operators.
The depreciation recorded at NAFEX between the two months under review increased the impact of foreign exchange on the prices of imported consumer goods in the domestic market.
Analysts at FDC believe December is a period in which higher festive related spending pushes up aggregate demand in the economy as anecdotal and empirical evidence in December 2018 has validated.
Compounding the demand pull effect of festive spending was the surge in FAAC by 3.12 percent to N812.76 billion. This means that state governments and federal agencies had more liquidity during the period.
Also worth mentioning is that the slope of the inflation curve is getting steeper, suggesting that the 2019 budget inflation benchmark of 9.98% may be unattainable. The average inflation rate in 2018 was 12.14 percent down from 16.54 percent the 2017 average.