Marginal Drop in Inflation Raises Prospect of Higher GDP

20 Jan 2013

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Food products in the market

Festus Akanbi
Economic analysts say the marginal fall in inflation figure for the month of December 2012 has raised the prospect of a positive economic outlook for 2013.

They also maintained that the ongoing negotiations between Nigerian banks and some of the preferred bidders of the electricity generating and distribution companies under the ongoing power reform programme would provide the basis for credit growth in 2013.
The latest Consumer Price Index rolled out by the National Bureau of Statistics (NBS) on Thursday showed that inflation figure, which was put at 12.3 percent in November last year, trended downward to 12 percent.

Analysts, who described the improvement in the nation’s economy as a sustainable development, postulated that the positive tempo might be retained by the time the inflation figure for the month of January is computed.

Responding over the weekend to THISDAY enquiries on the sustainability of the reduction in inflation rate in Nigeria, Head of Regional Research, Africa, Standard Chartered Bank, Razia Khan, said emerging economic fundamentals in the country favour further deceleration of inflation rate in Nigeria.

She said: “Come January, we expect to see an even sharper deceleration in y/y inflation, to 10.5% y/y or thereabouts – mainly driven by the base effect from the brief episode of full fuel price deregulation last year. “In order to adjust monetary policy, however, the Monetary Policy Committee (MPC) will need to be more certain that lower inflation can be achieved on a sustainable basis.  With the threat of a higher benchmark crude price being adopted in the 2013 budget, we’re not certain that can be taken for granted for the moment. On this basis, we forecast unchanged monetary policy next week.”

Nigeria’s inflation eased to 12.0% YoY in December, from 12.3% YoY in November, on the back of a slowdown in food inflation to 10.2% YoY, from 11.8% YoY in the previous month, which was largely due to a base effect. This implies inflation in 2012 averaged 12.2%, up from 10.9% in 2011. Monthly food price increases remained strong in December (1.5% MoM vs 2.0% in November), so we are not inferring a softening of food price pressures from the YoY inflation number, as yet. “Core” inflation (which excludes farm produce) accelerated in December to 13.6% YoY, from 13.1% YoY in November, largely on account of clothing and footwear, and households’ equipment and furnishings, which likely reflects festive season pricing”, the report said.

The favourable report from the NBS, according to Director, Sub-saharah Africa Economist, Renaissance Capital, Yvonne Mhango, is bound to raise the prospect of a higher Gross Domestic Product (GDP) and a more robust credit regime.

Describing Nigeria as a country of choice in the Europe, Middle East and Africa (EMEA) market, Mhango said, “With our growth expectations for both GDP (6.7%) and credit (20%) up YoY into 2013, we think Nigeria is the one EMEA market that should benefit from accelerating top-down trends. EMEA is a designation for the division of a company that operates in the regions of Europe, the Middle East, and Africa.

Insisting that Nigerian economy will experience credit growth in the New Year, the Rencap official said the ongoing power sector reforms and similar exercise in the oil sector would make lending irresistible to banks.

She said, “We could see acceleration in credit growth from the mid-teens to c.20% on the back of initiatives in the power and oil sector coming through.

Credit growth will also be impacted by movements in the Cash Reserve Ratio (CRR) – at 12%-it remains punitively high for the banks. With the naira having strengthened towards year-end, there may be scope for some relief on this front.

Managing Director, Skye Bank, Mr. Kehinde Babatunde-Etti, who painted a bright picture for the nation’s economy, corroborated that position as well.

The bank boss, who confirmed that banks are in discussions with preferred bidders of the Power Holding Company of Nigeria (PHCN’s) succeeding companies, said Nigerian banks were ready to be part of the power sector reforms.

According to him, Skye Bank is discussing with a number of the bidders and the bank is ready to make funds available for the project.
Earlier, Managing Director, First Bank Plc, Mr. Bisi Onasanya, had told THISDAY that apart from local banks, some foreign investors have indicated their readiness to pump money into the power project, a development, which promised to raise the bar of credit facilities in Nigeria. However, Khan warned that “rather than take great encouragement from marginal improvement in the inflation rate as announced by the NBS, the detail is important”.

According to her, “The key driver of CPI appears to have been a rise in core inflation – up to 13.7% y/y in Dec, and marking the second consecutive month in which we’ve seen a rise, breaking up a trend where the tightening of monetary policy had appeared to be having a meaningful (and perhaps overriding) impact on price pressures.

Food prices, perhaps somewhat surprisingly, appear to have decelerated (in y/y terms) for the first time since the onset of the flooding. We will have to see how long-lasting this is,” she said.

Tags: Business, Nigeria, Featured, Inflation, Gdp

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