Nigerians
would have to brace up for some tough times ahead as experts say the
persistent rise in food prices is set to continue in 2011.
Bismarck
Rewane, Managing Director, Financial Derivatives Company said “The high
food prices experienced in the first half of 2010 are expected to
resume in 2011 as increased prices of key food imports such as Sugar,
Wheat and Rice seen in 2010 is expected to continue in 2011”.
“This
will be coupled with the normally unreliable first harvest period of
the year compared with the second harvest period in July/August. To
supplement, old stock will have to be sold which will expectedly
pressure food prices to trend upwards at least until the next harvest
season. Therefore, food inflation is expected to trend upwards in
coming months” he said.
Mr
Rewane said “Headline inflation is expected to stay within the range of
13 per cent to 14 per cent. Core and food Inflation will average 13.5
per cent and 15 per cent respectively in 2011. A likely driver of
higher inflation is the election spending which will intensify for the
period under consideration as the impact of the spending hits the
market place. Another factor that is expected to contribute to higher
prices in 2011 is the expected 64 per cent increase in the minimum
wage. It is expected that the wage bill will be signed into law in the
first quarter of 2011 at least to woo voters.”
Data
from the Nation’s Bureau of Statistics shows that the nation’s average
monthly food prices have been rising marginally over the months. The
average monthly food prices marginally rose again by 0.9 percent in
December 2010 when compared with November of same year.
In
its latest statistics, the Bureau states that the increase in the index
was caused mainly by increase in the prices of some food items like
meat, fish, oil and fats, vegetables and fruits mainly due to the
festive period.
Inflation
rose by 11.8 percent year-on-year in December 2010, significantly lower
than 12.8 percent recorded in the previous month in the new Consumer
Price Index (CPI) series. The monthly change of the CPI was 1.3 percent
increase when compared with November 2010.
A major concern
Food
prices account for about 60 per cent of inflation, although food only
constitutes half the CPI. Imported food constitutes 13 per cent of CPI,
which is higher than both transport, and clothing and footwear’s shares
of the consumer basket.
Analysts
at Renaissance Capital, an investment bank in a report titled
‘inflation remains a major concern’ say food prices are by far the
largest source of inflation, partially due to high imported food
inflation.
“As
global food prices are likely, in our view, to exhibit their strongest
increase since 2008 this year, food price pressures – particularly from
imports – will likely escalate in 2011. Moreover, a higher
international price implies upward pressure on fuel and transport
prices, which has implications for distribution costs. Looser fiscal
spending than the government plans and significant fiscal injections
related to AMCON are to add to Nigeria’s inflationary pressures in
2011.”
“We
therefore expect inflation to continue to exceed single digits,
remaining in the 11-12 per cent region over the year” the report stated.
Experts
say inflation is to remain stubbornly high as high distribution costs,
owing to structural constraints and imported food inflation are likely
to sustain strong inflation.
Seeking solutions
Samir
Gadio, the Emerging Markets Strategist, Standard Bank says although the
Central Bank could argue that further tightening is required until
consumer prices fall into single-digits, its ability to achieve such an
objective via policy interest rates is however constrained by the
weakness of the monetary transmission mechanism, structural bottlenecks
in the economy and the mostly exogenous nature of inflation metric in
Nigeria at present.
“We think it is possible to converge to a real rate regime and reduce
inflation by adopting the geometric mean approach and allowing some
Naira appreciation in the medium-term as the country’s fiscal position
gradually improves. Meanwhile, the idea that loose fiscal policies
would result in a spike in core inflation has not materialised because
these dynamics were offset by a weak money multiplier and a drop in
private sector credit” he said.
Even
though inflation has moderated, it remains above the Central Bank’s
target of 9 – 9.5 per cent, with risks remaining on the upside, both
from domestic demand and higher global commodity prices.
At
the Monetary Policy Committee meeting held last week, the Committee
noted that although inflation has been trending downwards, the single
digit benchmark was not achieved in 2010, despite the relatively good
harvest, improved supply of petroleum products and lower growth in
monetary aggregates.
