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Prices of goods will rise further, experts predict

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Prices of goods and services are to go up in months ahead, experts have warned.

Their warning came as prices soar following last month’s hike of interest rate by the Central Bank of Nigeria (CBN). The apex bank raised the rate by 150 basis points to 13 per cent.

The experts warned that the bank may be pressured to further increase benchmark interest rate.

Though the rate hike could limit inflation risks, higher costs of capital could further exacerbate the groans in the productive sector and worsen the pass-through effect on the consumers at a time external and internal disruptions have sapped average purchasing power.

Economic and financial experts warned at the weekend that tougher time may be ahead for the consumers, as global challenges fuel domestic gaps, leaving policy makers with tough choices of trailing global outline, despite the pass-on effects on the economy.

The economic outlook analysis at the weekend comes on the heels of the release of the latest Consumer Price Index (CPI) by the National Bureau of Statistics (NBS), showing that headline inflation rose by 0.89 per cent from 16.82 per cent in April 2022 to 17.72 per cent in May 2022. This was the fourth consecutive monthly increase and the highest inflation level since June 2021.

Senior Research Analyst, FXTM, Mr. Lukman Otunuga said Nigeria may be back on the path of rising inflation as ongoing geopolitical risks, extreme weather, and supply-chain disruptions could feed the inflation further.

He added that pre-election spending ahead of the general elections is likely to exacerbate the negative situation.

According to him, Nigeria’s economic outlook remains threatened by disruptive power outages, foreign exchange shortages, capital outflows, and untamed inflation.

Bismarck Rewane’s Financial Derivatives Company (FDC) said the dependence on key industrial and consumer goods has worsened the precarious position.

The FDC said: “Nigeria is an importer of some food, raw materials and energy, including wheat and diesel. Over 40 per cent of Nigeria wheat import orginates from Russia and Ukraine.

“The price of wheat, for instance, has gone up by over 35 per cent since the beginning of the war in Ukraine in February. Wheat is used in making flour and bread which is a major staple.

“The surge in global wheat prices is being exacerbated by the exchange rate pass through effect and driving food inflation. Meanwhile, diesel has contributed astronomically to the domestic rise in prices and inflationary pressure.

“Diesel has risen about 300 per cent in the last year and is selling for around N800 per litre currently. Elevated diesel prices are increasing business operating expenses and logistics costs which is further compounding the sustained increases in the general price level.”

Against the background of the latest hikes in interest rates by major central banks of the world, FDC said the possibility of increase in general prices of domestic goods is higher.

According to FDC, a hike in interest rates by the major economies will raise the value of their currencies relative to that of other currencies such as the naira and worsen the effects of imported inflation on Nigeria’s economy.

On the policy impact of the rising inflation, FDC stated that the CBN, which will be holding its next meeting in July 2022, may be forced to hike the Monetary Policy Rate (MPR) again.

“Given the continued relentless rise in inflation, this is likely to provide impetus for further rate hikes by the MPC in a bid to stem inflationary pressure,” the FDC stated.

It pointed out that several African countries which had long shown reluctance to raise interest rates have finally given in to the pressure of mounting inflation and hiked their benchmark policy rates, noting that as the world continues to move in the direction of monetary tightening, African countries are widely expected to follow this trend.

Analysts at Afrinvest (West Africa) said they expected the uptrend in headline inflation to remain elevated given the persistent rise in food and core inflation rates.

“We anticipate the pressure on food to be sustained due to the ongoing geopolitical tension in Europe and structural challenges affecting food production and preservation.

“Nonetheless, we see some respite in food prices resulting from the green harvest. In terms of the core inflation rate, we do not foresee energy prices abating as the Russian-Ukraine crisis and sanctions have hurt supply capacity,” they stated.

Cordros Group, a leading investment and finance group, at the weekend projected that domestic prices will maintain an uptrend in the short term, citing the lingering increase in energy prices and progressive hikes in electricity tariffs amidst the current shortages of premium motor spirit (PMS) in some parts of the country.

Analysts at Afrinvest (West Africa) said they expected the uptrend in headline inflation to remain elevated given the persistent rise in food and core inflation rates.

“We anticipate the pressure on food to be sustained due to the ongoing geopolitical tension in Europe and structural challenges affecting food production and preservation.

“Nonetheless, we see some respite in food prices resulting from the green harvest. In terms of the core inflation rate, we do not foresee energy prices abating as the Russian-Ukraine crisis and sanctions have hurt supply capacity,” they stated.

Cordros Group, a leading investment and finance group, at the weekend projected that domestic prices will maintain an uptrend in the short term, citing the lingering increase in energy prices and progressive hikes in electricity tariffs amidst the current shortages of premium motor spirit (PMS) in some parts of the country.

“While other oil-producing countries are enjoying the gift of soaring commodities, Nigeria has failed to cash in thanks to sub-optimal oil production, heavy reliance on gasoline imports, and fuel subsidies. Meaning that the current commodities boom is not translating to higher export earnings for Nigeria but to higher costs and inflationary risks,” Otunuga said.

He added that given how the CBN has triggered a tightening cycle, more hikes are expected down the road, espousing almost a consensus opinion of independent analysts.

According to him, with the CBN now focused on fighting inflation and interest rates rising rapidly across the globe, more hikes could be on the table to limit capital outflows.

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