Nigeria Content Online

The relief from the recently announced ease in inflation may not hold much water, as some finance experts remain sceptical, saying inflation pressures would persist, given factors such as marginal increase in money supply, stimulus funds, among others.

Nigeria’s consumer inflation eased to 13.6 percent year-on-year in September from 13.7 percent the previous month, the National Bureau of Statistics said on Monday.

In a Reuters report, the Bureau says growth in food prices, which form the bulk of the inflation index basket in Nigeria, dropped to 14.6 percent year-on-year, from 15.1 percent in August.

Bismarck Rewane, managing director, Financial Derivatives Company, a finance firm, said that with marginal increase in money supply, stimulus funds, bailout funds for rescued banks, and the forthcoming 2011 elections, inflationary threats would remain.

“A currency depreciation of 10 percent will make imports cheaper, and help mute inflation in the short run, but increase import dependency in the long run,” he said, adding that inflationary pressures would persist as the naira is expected to weaken while external pressure is also a serious threat.

Headline inflation increased to 13.7 percent in August, from 13 percent in July. Similarly, food and core inflation increased marginally to 15.1 percent and 12.4 percent in August from 14 percent and 11.3 percent in July; while urban and rural index rose in August to 10.9 percent and 15.6 percent (year on year) respectively.

In September, the Central Bank unpredictably raised its benchmark lending rate for the first time in more than a year to 6.25 percent from six percent, in an attempt to address rising inflation concerns as against boosting growth, and also to contain the anticipated higher government spending ahead of elections due next April, which is also poised to keep an upward pressure on inflation.

Other threats

The Monetary Policy Committee (MPC) of the Central Bank, also in September, reiterated its earlier position on the threat of inflationary pressure arising from several other factors, including implementation of the new salary structure in the civil service.

Furthermore, expected fiscal injections arising from electioneering expenses, and the injections relating to the Asset Management Company (AMCON) purchase of non-performing loans of banks, and spill over effects of the rising food prices from famine in neighbouring Niger Republic are identifiable threats too.

Similarly, floods in Asia, deregulation of energy prices, as well as the expected increase in household-spending toward year-end festivities remain threat factors.

The committee supported the deregulation policy of the Federal Government, but stated that it would continue to monitor price developments with a view to taking appropriate policy measures to stem any inflationary threat and ensure that the upside risk of inflation to growth is minimised.