How Economy Lost Single Digit Inflation Target
The 18-month consecutive fall in inflation rate, had in the last two months, lost momentum in making more significant decline, as food prices, now coupled with assessed harvest failures, worsened outcome.
Consequently, the nation’s inflation numbers returned to negative territory, losing 0.09 percentage points to 11.23 per cent in August, from 11.14 per cent in July, an affirmation that the economy is gradually losing its positive positions.
But the situation is now heightening speculations on the implications of expected huge election spending, which would soon kick off fully, while festivity-induced inflation later in the year and actual post-harvest losses would aggravate the numbers.
On Thursday, the capital market continued its losing streak, as it fell below N12 trillion market capitalisation mark, with investors losing values on their stocks to the tune of N521 billion cumulatively on Wednesday and Thursday, an indication of sliding economic fortunes.
The Head of Research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, had earlier raised concerns on the implications of the unending violence affecting farmers and their agricultural investments, noting too that changes in food prices were trending upwards.
“The crisis in food producing states was to blame. I also think that lack of prompt and proper responses to issues are partly fueling the new economic misfortunes. So many people pulled out of farms too. This is harvest period, but the prices of food items are rising instead of falling, showing that we did not produce enough.
“I think the issue of single digit inflation is no longer feasible, but the upward trend may not reach 12 per cent by the end of the year,” he said.
A Research Analyst at FXTM, Lukman Otunuga, said the window of opportunity for the Central Bank of Nigeria to cut interest rates just narrowed further, following the reports of rising inflation to 11.23 per cent.
“It must be kept in mind that for an extended period, the apex bank was waiting for inflation to reach single digits before cutting interest rates to support growth.
“Now that consumer prices are at risk of rebounding further, as pre-election spending that is capable of triggering demand-pull inflation is around the corner, the CBN could be forced to remain on standby this year.
“An interest rate cut now has the ability to stimulate economic growth. However, it may end up triggering capital outflows, as the monetary divergence between the Federal Reserve and CBN will widen,” he said.
Source: GUARDIAN
