‘Interest rate hike has not attracted much-anticipated foreign inflows’
• Inflation soars further by 17.6% in August
SCM Research Capital has argued that the last interest rate hike by the Monetary Policy Committee (MPC) has not attracted the much-anticipated foreign inflow into the country.
According to a report from the research unit of the firm, the persistent rise in inflation in the country is as a result of the lingering effect of foreign exchange scarcity due to the import dependent nature of the economy.
It explained that the marginal propensity to import is about 0.9, noting that for every one naira spent in the country, the import component is 90 kobo.
“The current increase in prices of goods and services is reflective of the burden of dollar scarcity. We view the rising inflationary trend as a dilemma for the MPC given the current economic atmosphere of subdued growth (contraction), weak purchasing power, rising unemployment and declining External Reserves.
“The last rate hike has not attracted the much anticipated foreign inflows into the country. We think any further attempt to raise rate may hamper the growth objective and further plunge the economy. As such, we do not expect any rate increase at the upcoming MPC meeting. `
The firm noted that Consumer Price Index (CPI) release by the National Bureau of Statistics (NBS) for August 2016 showed that inflation grew by 17.6 per cent year on year, from 17.1 per cent recorded in the month of July 2016.
The figure, according to the company was the highest since October 2005, as cost of housing and utilities, food and transport rose at a faster pace.
It further explained that inflation rate in Nigeria averaged 12.17 per cent from 1996 to 2016, reaching an all-time high of 47.5 per cent in January of 1996, and a record low of 2.49 per cent in January of 2000.
“The increases were recorded in all divisions, which contribute to the Headline index reflecting higher prices across the board. The major divisions responsible for accelerating the pace of increase in the headline index were housing, water, electricity, gas and other fuel, education and transportation services.
“The food inflation rate stands at 16.4 per cent, from 15.8 per cent in July, with the pace of month-on-month increase remaining unchanged at 1.2 per cent from July. The food Inflation in Nigeria averaged 10.96 per cent from 1996 until 2016, reaching an all-time high of 39.5 per cent in September of 2001 and a record low of -17.5 per cent in January of 2000.
“The core inflation also rose to 17.2 per cent year-on-year from 16.9 per cent year-on-year recorded in July with the pace of month-on-month increase in core index also slowing to 0.9 per cent from 1.2 per cent in July.”
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