Stories by Emeka Anaeto, Economy Editor,

With over one week to the end of this month, economy analysts and financial institutions have indicated that cost push inflation resulting from foreign exchange crises would resonate in the headline index in February, 2016 reports.

Economy

National Bureau of Statistics, NBS, had reported last week that Imported food prices rose by 1.0 per cent month-on-month in January after an increase of 1.2 per cent the previous month.

Reacting to the inflation report of the NBS for January 2016, economists at FBN Merchant Bank noted last weekend that despite the difficulty of importers in sourcing foreign exchange from official sources, the pass-through to inflation had less of an impact than might be expected.

According to them “anecdotal evidence suggests that they (the importers) have taken much of the hit themselves”.

However, they stated that “since the headline and the food price index were broadly flat in January, while core inflation accelerated, we should cite the NBS statistical health warning: that processed food is included in both the core and food sub-indices, which are not mutually exclusive”. This they believed must have moderated the impact of the pass-through of the foreign exchange on the headline index for the month of January, which may not happen in February report.

Noting that the core sub-index grew to 8.8 per cent year-on-year from 8.7 per cent in December but stayed flat at 0.8 per cent month-on-month, economists at Afrinvest Group, a Lagos based investment house, stated that “contrary to the above, we believe the implication of the development in the foreign exchange market points to further pressure on inflation rate in subsequent month as import costs continue to rise.

“In the interim, this is expected to continue to impair operating performance of companies, thus heightening recessionary tendency of the economy in the short to medium term.

“Going forward, the challenge of greater import costs on businesses is expected to further impact both the core and food inflation rates as cost push factors weaken operating margins amid demand pressure in the foreign exchange market”, they stated.

Headline inflation in January was unchanged at 9.6 year-on-year, according to NBS report last week.

But this figure was again above the CBN’s “tolerance” range of between 6.0 and 9.0 per cent year-on-year.

The NBS commentary noted that among the highest month-on-month price increases were those recorded for passenger transport by road, a development which impacted on the headline rate and would continue in subsequent months as the transport cost has not abated.