By BABAJIDE KOMOLAFE

The rising inflation rate experienced in the first half of the year would intensify to 13 per cent in the third quarter, says analysts at Financial Derivative Company.

Meanwhile, the naira depreciated further yesterday to N162 per dollar at the parallel market, but appreciated to N150.9 per dollar at the official market.

“Price pressures are expected to be most persistent in the 3rd quarter as the federal government spending is expected to kick in full swing in the third quarter.

The minimum wage is kicking in Q3 at the federal level and state governors only just agreed to effect the same at the state levels.

Price levels could yet touch 13 per cent per annum in the third quarter”, they said in the Company’s bi-monthly economic and business update

Inflation rate rose to 12.4 per cent in May from 11.3 per cent in April, in defiance of efforts by the Central Bank of Nigeria (CBN) to tighten money supply namely increase in the monetary policy rate.

Commenting on this development, FDC analysts said, “The market was surprised at this development in view of the fact that the CBN had tightened money supply in the past few months.

“A close look at the consumer basket, which is used to determine the index, shows some interesting trends. Food prices rose by 12.2 per cent p.a. year-on-year, whilst core inflation (which discounts seasonal fluctuations in food and energy prices) spiked to 11.7 per cent p.a.

The imported food basket surged to 15 per cent p.a. from 14.6 per centp.a. the previous month. This is indicative of not only an urban inflation phenomenon, but also the import dependency of the Nigerian economy. It shows how vulnerable the economy is to any changes in the exchange rate.

The CBN in its inflation targeting strategy had focused on managing the money supply aggregates as an intermediate anchor for containing inflation.

It however missed the point in its economic diagnosis in that the recent pricing pressure has little to do with money supply growth. As a matter of fact, Broad Money supply (M2) in 2011 until April grew by a mere 3.5 per cent or N410.2bn, compared to the target of 25 per cent.

Therefore tightening the financial markets remains a necessary but not sufficient condition for managing the recent inflationary phenomenon.

The food inflation pressure is coming partly from the higher and fast growing cost of haulage and transport of foodstuff from the farms to the urban centres. The price of diesel – the fuel used by trucks and trailers – has gone up by 26 per cent to N165 per litre in the last quarter.”

Meanwhile the naira depreciated further yesterday to N162 per dollar at the parallel market.

It would be recalled that parallel market exchange rate rose to N160 per dollar from N158 per dollar due to sharp drop in foreign exchange supply to the market occasioned by the limit of $250,000 per week imposed on banks’ sale of autonomous foreign exchange to bureaux de change.

In response to the policy, banks suspended sale of autonomous foreign exchange to BDCs.

Investigations revealed that banks are yet to resume sale of autonomous foreign exchange to BDCs as at yesterday.

But at the official market, the naira appreciated again by 107 kobo despite slight increase in foreign exchange demand at the auction conducted by the apex bank.

The exchange rate dropped to N150.9 per dollar from N151.97 last week. Demand rose to $192.33 million from $182.96 million in the last auction.

This effectively widens the gap between the official exchange rate and the parallel market exchange rate to N11.10 from N8.03.