Home Finance & Economy Inflation rate to increase to 12.37% in February- Analysts

Inflation rate to increase to 12.37% in February- Analysts

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A group of analysts at Meristem Research have said the nation’s inflation rate to Increase to 12.37per cent in February from 12.13per cent reported by the National Bureau of Statistics (NBS) in January.

They expressed that the impact of the outbreak of the Coronavirus Disease continues to reverberate across the global economy as world leaders strive to contain the spread of the virus.

They said, “What began in the Chinese territory of Wuhan has now been declared a Pandemic by the World Health Organisation (WHO).

 “As of today, a cure has yet to be found for a virus which is currently affecting 125 countries (the worst hit being China and Italy) with over 120,000 reported cases and 4,600 deaths.

“The persistence of the virus casts a dark cloud over global economic prospects as quarantines and travel restrictions bear on global demand, leading international agencies to suggest that initial growth projections for 2020 could take a 50per cent slash.

“Global oil prices have crashed to multi-year lows (c. $30 per barrel) in a price war by major global oil producers following the breakdown of supply-cut negotiations (which were considered necessary in order to prop up oil prices after a contraction in oil demand occasioned by COVID-19) between OPEC and its key Non-OPEC ally, Russia.

 “This has sent panic waves across the international oil market and especially crude-oil dependent economies.

“Financial conditions have tightened across the global economy on the heels of the pandemic and in response, the US Federal Reserves and the Bank of England recently announced rate cuts of 50 basis points each in a bid to ease monetary conditions.

“Similar policy moves can be expected from other major economies in the near term.”

They noted that the domestic front, the combined effect of increased system liquidity, and the implementation of the new VAT regime which kicked off in February 2020 is expected to keep inflationary pressures elevated in the month.

“Similarly, the decline in supplies from China due to coronavirus is expected to bear on the cost of industrial inputs in February and beyond. Food prices also remained high, pressured by the sustained border closure.

“Data from CBN’s PMI for February 2020 reveals that both input prices index (61.40pts) and output prices index (53.70pts) are expanding, albeit slower relative to January 2020.

“Input prices have however risen faster by 50 bps y-o-y from 60.90pts to 61.40pts while output prices index have maintained tempo y-o-y at 53.70pts.

“The current dynamics in the oil markets is expected to bear on CBN’s ability to continue to defend the Naira and precipitate exchange rate-induced inflation.

“We also expect further pressure on inflation to emanate from the implementation of the revised electricity tariff regime,” Meristem Research.

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