With the recent hike in pump price of fuel and the directive to oil marketers to source forex from the parallel market including black market, with its attendant increase in exchange rate, experts have advised Nigerians to brace up for harder times as there appeared to be no end in sight to the rising inflation which has sent prices of commodities up.

And given the existing macroeconomic indices, it is further expected that the Cnetral Bank of Nigeria (CBN) may raise the monetary policy rate (MPR) during it meeting this week.

Speaking in an interview with THISDAY on developments in the economy, an Associate Professor of Finance and Head, Banking & Finance, Department, Nasarawa State University, Keffi, Dr. Uche Uwaleke, predicted a lot of distortions in the economy adding that hard times are really around the corner.

According to him, “in the short term, Nigerians should expect more difficult times ahead. The inflation rate we have now is even the official figure from the National Bureau of Statistics (NBS). If you take independent opinion from other research outfits, it may be higher. The actual inflation in this country is higher than 13.7 per cent.”

Uwaleke further projected inflation to rise in May.

He said: “My prediction is that the official inflation rate of 13.7 per cent is still going to climb further because of the hike in fuel price, and the fact oil marketers have been asked to look for dollar from the secondary sources-and that will put a lot of pressure on the foreign exchange market because most of them will be getting it from the parallel or black market which is shallow, but the important thing to note is that this will put pressure on the dollar and the naira is bound to weaken further.”

He also said the Central Bank of Nigeria (CBN) may likely devalue the naira at its next MPC meeting with further consequence for the economy.

According to him, “the committee may end up officially pronouncing a devaluation of the naira from the current N197/N199 to the dollar. So if the naira is devalued, because devaluation is bound to follow the so-called deregulation we have now in the petroleum sector: devaluation is simply something that naturally accompanies it. Just like we’ve seen elsewhere, in January, Venezuela hiked the price of gasoline and at the same time devalued its currency.

“So that’s what is likely going to play out here-devaluation will follow suit and if that happens you can imagine the particular effect it’s going to have on the economy: inflation rate will go up and the MPC meeting which is about to take place is expected to increase the monetary policy rate. The whole implication is that it will increase the costs of funds which are already high and making it difficult for the small and medium enterprises to source funds and it will be more expensive and these costs will be transferred to the ultimate consumer.”

Continuing, the university don posited that the new call for increase in minimum wage could further dampen the prospects of reducing inflation.

He said: “Again, labour is talking about increasing minimum wage: if you increase minimum wage without a corresponding increase in productivity, what you find is further inflation. All of these will rub off in the short term, we are hoping to see a lot of distortion in the economy.

“But in the long term, if the capital portion of the budget is well applied, I expect the hardship will be moderate in terms of creation of job opportunities and gradual trying to increase productivity and reduce inflation. But in the short run, we should expect inflation going beyond 13.7 percent and the naira weakening further even at the black market.”

For the analysts at Eczellon led by its chief executive officer, Diekola Onaolapo, “the sharp rise in inflation came in unsurprising as the country continues to grind under petroleum shortages which has pushed petrol price to a new higher national average price of N162.8/litre in April from N135.7/litre in March.”

Likewise, they pointed, “lag effect of electricity price hike as well as an increase in price of vehicle spare parts were other key contributors to the upsurge in the inflation rate.”

Specifically, the Eczellon analysts, explained that, the new inflation figure has two basic implications for businesses and individuals in the country.

“First, it will drive up the cost of borrowing for the government which will manifest in the form of a higher yield on government securities as investors will demand higher returns to cover the new inflation rate. This will in turn dovetail into higher borrowing cost for private businesses as well given that the benchmark (government) borrowing cost in the economy has gone up.

“Secondly, the higher inflation figure further erodes the real earnings of average Nigerian which would invariably limit his/her spending capacity. This should have far-reaching implications for consumer facing industries/companies in the coming months, other things being equal.”

The analysts noted that, “as uninspiring as the above may seem, the situation is not likely to get better anytime soon for three key reasons”

“First, the commencement of the implementation of the 2016 budget would increase the liquidity level in the economy which could resort to further inflationary pressure in the month of May. Secondly, the value of the naira worsened last week at the parallel market on the back of heightened demand from oil marketers.

This is likely to remain the case in the coming weeks due to inadequate FX supply to meet the rising demand in that segment of the market. Thus, imported inflation would likely be impacted which could in turn drive up general price level in the economy. Thirdly, the upcoming Ramadhan fast billed to commence in early June is typically associated with higher prices of food, pushing consumer prices further north,” they said.

“That said, the Monetary Policy Committee (MPC) of the CBN may be inclined to raise MPR (Monetary Policy Rate) further to tame inflationary pressures at its next meeting later this month. We however believe that a more sustainable approach would be a comprehensive review of the nation’s FX policy to allow for adequate flexibility in the pricing of the naira. This should aid in attracting the much needed FX required to fund the nation’s import requirements and tame the pace of price increases in the interim,” the analysts however added.

banme1:
We zombies will continue to shout sai baba.

ichidodo:
To be honest,we are loving this.....Proudly 5%.

wordychap:
O God, deliver us from buhari,
we ask for mercy n say we're sorry for entrusting d presidency in his care,
whatever it takes, deliver Nigeria from buhari O Lord!

Akon419:
Exactly the same thing that happened in 1984 during this man 2 years regime .God we need another IBB like to do the needful and librate this country from this man's hand

titiakins:
Why won't there be harder times when Buhari is busy 'fighting corruption' with his Nepa certificate
Abegi