Naija Foodie Update

Foodie Naija Update (January Inflation To Drop On Lower Disposable Income)

Having shot up to 9.55% in December last year, analysts have said the inflation figure for
January will drop as consumer income and demand fall in the midst of lower government spending.

Inflation had risen to 9.55% from 9.4% in
November, but lower
government spending, wage cuts, and job loss affected
demand for goods and ultimately the prices.

Analysts at FSDH Merchant Bank who expect inflation to drop to 9.24% said that the “moderation in the inflation rate would be as a result of the base effect of
January 2015 and the drop in commodity prices.”

At Financial Derivatives Company
Limited, analysts are more conservative, predicting a drop to 9.5% and saying that
the “slowdown in inflation in January can be partly attributed to the cumulative effect of a
reduction in aggregate income and demand following a
contraction in government’s
spending.

“There has also been reduced demand following the end of
seasonal festivities. January is also the month school fees are paid. These factors combined
have further reduced
discretionary income.

Furthermore, though the scourge of imported inflation persisted due to record weak levels of the naira, the intensity of imported
inflation was abated by pushback from consumers who
either have cut demand or use
cheaper substitutes.

“Products with a high elasticity of demand, such as air travel,
have been affected by lower demand due to increasing costs.

Given persistent macroeconomic
headwinds, which have led to lower disposable income and a bleak outlook, consumers have
generally cut back spending on food and non food items,” the
analysts explained.

The Monetary Policy Committee of the Central Bank of Nigeria had at its last meeting left rates
unchanged having noted that it would continue to monitor
consumer price developments with a view to formulating
policies that will keep inflation in
check.

Inflation had risen for the eight time in the last one year moving
out of the CBN band of 9%. The decline will be contrary to the annual trend in 2014 and 2015, when the price level
increased in January.

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