The Managing Director of Cowry Assets Management Limited, Mr. Johnson Chukwu has given reasons why inflation rate in Nigeria defied all predictions suggesting that it would slide down to lower double digits before the end of the year 2017 which turned out not to be so.
Chukwu said that the prediction was hinged on base effect saying that the reason why it had not gone down as much as expected was partly due to the impact of imported food items in the food basket of Nigerians.
He added that imported food transmit the foreign exchange rate to consumer prices even as he posited that the nation was still battling with high level of imported food item which had to result at the current exchange rate which in turn meant that a drop in inflation at some time became resistant.
He observed that a look at the individual sectorial indices would show that until December figure, most previous months had spike in food inflation insisting that because of the weight of the food basket in the Gross Domestic Product (GDP) calculations, that effect on food inflation moderated the rate at which the inflation rate was slowing down.
In his words,” The projection that inflation will materially decline last year was based on what you call base effect, the expectation that the jump between preceding year and last year was very material and we felt that we were not going to see that kind of jump this year but we are seeing almost a neat double digit, we are talking about 15.37%, that is also a material decline below the 18.70% we saw in January 2017. But you have to understand that the reason why has not gone down as much as expected was partly due to the impact of imported food items in the food basket of Nigerians.
“You know that imported food transmit the foreign exchange rate to consumer prices. So, we are still dealing with high level of imported food item which had to result at the current exchange rate and that meant that a drop in inflation at some time became resistant. If you look at the individual sectorial indices, you will observe that until December figure, most previous months had spike in food inflation. And because of the weight of the food basket in the GDP calculations that effect on food inflation moderated the rate at which the inflation rate was slowing down”.
On why the capital market witnessed positive signs in the first one month of 2018, Chukwu attributed the development to three factors namely; the return of the portfolio investors back to the country, efforts by the Pension Fund Administrators to balance their portfolio to meet the regulated minimum holding of equities stipulated by the Pension Commission guidelines and market sentiments.
On the sustainability of the gains made so far in the capital market, he quipped, “It will be difficult for anybody to predict that but what I see is that such trend may not continue, the market at some point will slow down and the recovery fundamentally takes off”.
Speaking on the 2018 appropriation bill pending before the National Assembly, the Cowry Assets Management boss recalled that the Director-General of Budget Office, Mr. Ben Akabueze announced recently that he expects that the budget would be ready this February, expressing the believe that, “it is in the interest of everybody that we have the budget early”.
He continued, “You remember this is a year preceding our election year, so, by the time we get to the second quarter of the year, there will be a lot of political activities that will put the economic issues at the background. So, we need to do everything to make sure that the budget is approved now. Again, I also want to believe that the government wants to have the budget now so that they will use it to do some quick jobs, what you call quick wins to ensure that all these things count for the next election. I do not imagine that the budget will drag to the second quarter of this year”.
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