Consumer Inflation to Accelerate as Companies Plan to Hike Prices
Nigeria’s consumer spending would continue to decline in the second half of 2023 amidst a planned increase in retail prices of goods and services by private sector operators, according to analysts.
Based on MarketForces Africa discussions with market analysts, they anchored their prognosis on the fact that Nigerians are already facing multiple economic pressures that have reduced the financial weight of average individuals as the naira continues to lose its allure in the market.
The policy committee of the Central Bank of Nigeria (CBN) 25 basis points benchmark interest rate hike also supports possible move to push retail prices of goods, though, some think companies will seek balance in order not to lose market share amidst heightened competition.
In their updates, investment banking firms estimated different inflation estimates for the month. By consensus, they expect inflation to rise faster down the year as companies begin to weigh upward price adjustments.
Economists told MarketForces Africa that a looking good; all-is-well inflation rate of 22.79% reported for June did not represent market reality, noting the negative impacts of ongoing economic reform by President Bola Tinubu.
The reported number came in contrast to an independent headline inflation rate between 40 to 45%, Futureview Financial Services said in its macroeconomic update. Some companies in the fast-moving consumer sector are expected to raise prices due to a much higher lending rate, and distorted price level that has pushed operating expenses upward including a push in energy costs following subsidy removal.
MarketForces Africa gathered from sources that Flour millers, and cement companies among other household goods producers mull price hikes given rising energy costs, borrowing rates, and running headline inflation. A flurry of profit-dilutive economic policies is already having negative impacts on private sector operators’ performances, consultants at LSintelligence Associates told MarketForces Africa in an email.
The firm noted that companies are adopting a wait-and-see strategy to see how their immediate rivals are adjusting to changing market dynamics as Nigeria’s finances are already under pressure.
“Any attempt to raise prices would mean that volume will be adjusted – trust me – sales/production volume will be affected but revenue may increase due to price adjustment not necessary upshot in market share”. In its macroeconomic report, Cowry Asset Management Limited told investors in its market noted that the outlook for Nigeria’s inflation stays elevated and uncertain at this time.
Analysts said their prognosis has it that factors such as the large budget deficit of the government, and planned hike in electricity tariffs, planned increase in flour prices by flour millers, continued naira depreciation, among many other factors, could further put upward pressure on inflation.
“.. The CBN is likely to raise interest rates in an effort to contain inflation, but this could have a negative impact on businesses and consumers as against the expectations of the markets in line with the recent policy reforms by the new administration for interest rate moderation.
“Thus, we project the July inflation rate at 23.05%, while the monetary policy committee may tweak rates slightly in the upward direction by 25 basis points to 18.75%”, Cowry Asset Management said in an update.
Towing the same line, Cordros Capital Limited revealed that the investment firm expects price pressures to rise faster in the near term as the impact of the FX and fiscal reforms did not reflect much in June’s core inflation reading. Analysts noted that Russia’s termination of the Black Sea grain deal and the beginning of the lean season portends short-term risks to food prices.
“Overall, we forecast the headline inflation to settle at 2.39% month on month in July, translating to a 70 basis points increase in the inflation rate to 23.49%”, Cordros Capital estimated. Nigeria’s reform has altered the very economic fundamentals of every business, though earnings are rising, volume growth has come under intense pressure.
“Unemployment rate has probably increased above 33.3% because the erstwhile president preferred social intervention to job creation of the 133 million technically poor Nigerians”, Research analysts at LSintelligence Associate said in an email correspondence.
In the month of June 2023, Nigeria’s headline inflation rate only grew by 38 basis points from 22.41% in the preceding months despite a flurry of negative market reactions to subsidy removal, and exchange rate liberalisation.
Futureview Financial Services noted that while the Bureau reported that annual inflation rose to 22.79%, a new 17-year high, analysts have been bothered by the integrity of the June print.
“The numbers, which unexpectedly came in lower than the 24.50% earlier forecast by several economists, failed to capture the impact of removing the petrol motor spirit (PMS) subsidy”, the investment firm said.
Following Nigeria’s jam-packed economic reforms, analysts at Futureview said they have penciled in higher inflation on the back of a 150% increase in PMS prices, a 32.7% rise in Broad Money to N64 trillion, and a 45% devaluation of the Naira.
“In this light, the importance of credible data, according to stakeholders, cannot be over-emphasized; the country is at a point where it is courting foreign investors to unlock opportunities in critical sectors, and this becomes difficult where the integrity of official data is in question”, the firm said in an update.
According to Futureview, independent estimates of inflation range between 40% and 45%. Market critics expressed views that ‘the June Consumer Price Index (CPI) numbers may not fully capture the impact of the fuel subsidy removal and the unification of the exchange rate.
“Nevertheless, the June numbers tell a tale, even if only in part of the rising cost of living”, Futureview said in a macroeconomic update. Nigerian Treasury Bills Yield Rises to 7%
