Inflation May Hit 17.4% As Costs Increase - Leadership

August 15, 2016
By Bukola Idowu

Having risen to a six- year high of 16.5 per cent in June, analysts said they expected inflation rate for the month of July to rise further to 17.4 per cent which would be the highest in 11 years as low foreign exchange supply and energy shortage push costs higher.

Inflation had risen for the fifth consecutive time in June reflecting higher costs of goods and services that was triggered by a weaker naira and higher fuel prices. Since the commencement of the flexible foreign exchange policy of the Central Bank of Nigeria(CBN), the value of the naira had fallen to N350 from N197 which it had been pegged for 16 months.

The naira depreciated significantly in all the forex market segments, as the anticipated level of forex inflow from international investors has not been forth coming. With the shortfall in supply, the market priced in the new uncertainty driving the parallel market rate to a low of N400 before stabilising at N395. The average exchange rate in the interbank market depreciated by 28 per cent in July from June's average of N232.85 to the dollar.

This had affected the prices of goods and services in an import dependent country which spiraled upwards. According to analysts at Financial Derivatives Company Limited (FDC), factors driving inflation include the lower than expected supply of forex, a weaker naira and sporadic supply shortages in the energy market. Likewise, analysts at FSDH Merchant Bank who believed inflation would rise to 17.35 per cent, said they "expect the increase to come from the increase in the prices of food items and other non-food items as a result of the depreciation in the value of the naira."

The National Bureau of Statistics (NBS) is expected to release the inflation rate for the month of July 2016 on August 18, 2016 based on the data calendar on its website.

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Steven Rich
Sep 17, 2018:
Well done

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