On the back of recent upswing in general increase in average prices of goods and services in the economy, analysts have predicted that Nigerians may experience weak purchasing power in the coming months.

Analysts at CardinalStone Partners (www.cardinalstone.com) said consumers may frontload festive purchases on border concerns.

It would be recalled that inflation rate has started building up again, the movement which analysts say it connected to government policies direction.

Though, hike inflation is an unintended consequence of Federal Government recent policies choices, but the collateral damages are expected to be feasible, analysts said.

National Bureau of Statistics (NBS), its recent data release shows that headline inflation rose by 36 basis points (bps) to a seventeen-month high of 11.61% year on year in October 2019.

The uptick was driven by the paciest inflation acceleration in 36 months, as the current reading is also ahead of both Bloomberg consensus of 11.20% and CardinalStone forecast of 11.40%.

The surge in price level was driven by food inflation pressures which surged 58 bps to 14.09% in October.

Cardinalstone reckoned that this coincides with closures of key land borders across the country.

“We believe the pass-through from border closures muted the impact of an otherwise above average main harvest and a 7bps moderation in core inflation to 8.88%.

“Nigerians may endure more purchasing power erosion in coming months. In our view, frontloaded festive demand may further bloat food prices and overall inflation reading in November and December”, analysts at Cardinalstone stated.

Analysts stressed that on this wise, the country may be set to witness another surge in food inflation during a main harvest season that could be worse than that of 2018.

“This is likely to translate to further erosion of consumers’ purchasing power, which had already been shaved by the combined impact of naira depreciation and weak wage growth in recent years”, Cardinalstone analysts added.

According to NBS, the highest price increases were recorded in bread & cereals, fish, meat, potatoes, and yam tuber food classes amongst others.

Analysts at Cardinalstone believe this price pressure could extend to some non-food items as traders adjust to the reality of rising cost of living.

The firm’s analysts said: “On balance, we expect the recent uptick in inflation to subsist in the near term and forecast inflation at 11.82% year on year in November, contributing to an average inflation forecast of 11.40% in 2019”.

Cardinalstone thinks that the expected surge in inflation may further reduce the allure of treasuries. The 36-bps jump in October headline inflation suggests a prevailing real yield of -1.68% on the one-year Treasury bill (9.93%).

It noted that the recent Open Market Operation (OMO) ban restricting individuals and local corporates has catalyzed into robust demand for government bills, driving yields down by as much as 400 bps on the 360-day paper since the announcement of the ban.

“For us, this negative real yield is likely to expand further on potential hikes in electricity tariffs and value added tax (VAT), reducing the real return in fixed income instruments.

“Akin to the case in 2016, expanding negative real yield could force domestic fund managers -such as Pension Fund Administrators – to further explore other investment options in coming months.

“In addition, we believe the level of system liquidity, direction of inflation, and the aggressiveness -or otherwise – of government’s “non-CBN” domestic fiscal borrowings are likely to determine the pace of yield moderation in the coming year”, CardinalStone analysts remarked.

VIAMichael Oluwafemi
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