Inflation rate in the country fell to 9.0 per cent in January. The National Bureau of Statistics (NBS) yesterday announced that the composite Consumer Price Index (CPI) which measures inflation stood at 9.0 per cent year-on-year in January 2013 compared to 12.0 per cent recorded last December.
This is the first time in over four years that the rate fell as low as 9.0 per cent. LEADERSHIP findings reveal that the last time it came this low was in May 2008 when it fell to 8.7 per cent. However, the rate had dropped to 9.4 and and 9.3 per cent between July and August 2011.
The country's economy is expected to grow at 6.75 per cent this year, driven by progress in agriculture, banking and oil, while high inflation rates should ease slightly, data from the NBS also showed yesterday.
The NBS forecasts this year's growth to be slightly faster than in 2012: 6.75 per cent compared with 6.61 per cent.
It said gross domestic product should expand by an average of 7.2 per cent next year, 6.9 per cent in 2015 and 6.6 per cent in 2016, adding that the projections assumed no change to monetary policy, stable fuel prices and a stable external environment.
Plans later this year to rebase Nigeria's GDP, which have been repeatedly delayed in the past, could push it close to the size of South Africa, the continent's top economy
According to the NBS, the year-on-year moderation in the headline inflation index during the month of January was as largely due to declines in the seven of the 12 key divisions, and was also exhibited in the declines in major Food and Core sub-indices.
The relative moderation of the Headline index from 12.0 in December to 9.0 in January could be largely attributed to base effects. These are as a result of higher price levels in the previous year, which imply that the year-on-year changes exhibited this year will be muted.
"In particular, the Nigerian economy exhibited several shocks in January 2012. The partial repeal of the premium motor spirit (petrol) subsidy led to increases in transportation costs as well as secondary effects, as the transportation costs affected food and non-food prices, the bureau said.
The steep fall in inflation rates yesterday triggered a flurry of activities at the financial market with treasury bills rates and bonds yields responding appropriately.
Samir Gadio, economic analyst with Standard Bank, London, in reply to LEADERSHIP enquiry said the popular consensus was 9.6 per cent YoY.
Gadio said this development triggered a rally in T-bills and bonds, given the magnitude of the move.
"The yields on some of the T-Bills fell to as low as 10 per cent while a number of bonds traded below 10.5 per cent. With inflation likely to remain subdued in coming months, further yield compression will probably materialise and it is not inconceivable that long-dated fixed income rates could fall below 10 per cent," said Gadio.
Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC), who has since predicted a single-digit inflation rate for January, said the Central Bank of Nigeria's Monetary Policy Committee (MPC) will have no other reason than bring down Monetary Policy Rate (MPR).
Gadio agreed, saying "in such an environment, there would be an increasing disconnect between where official policy rates (including the MPR) stand at the moment and market rates".
Rewane is optimistic that the reduction in inflation rate will lead to job opportunities as interest rates which have been decelerating will recede further.
He is optimistic that inflation will fall further to about 8 per cent in the next month.
He noted that single digit is a step in the right direction, adding however that there is need to put in place policies and measures that would ginger the further decline to a conducive level of 2 to 3 per cent.
He stated while a single-digit inflation rate is good for the economy, at 9 per cent, there is room for improvement. He said issues such as the constant excess liquidity in the system ought to be addressed if the country is to maintain a single-digit inflation rate.
However, the director-general of the West African Institute for Financial and Economic Management, Professor Akpan Ekpo, said the inflation rate is more likely to further depreciate if there can be a rein on government spending. "Nigeria's inflation is not a monetary problem; it is more of a fiscal issue. If we can avoid fiscal rascality, if there can be a cut in federal, state and local government spending, then, I see the inflation rate going down further," he said. "It is very healthy for the country if the inflation rate is down to single digit because that means that the misery index is down and people can now buy more. I do hope that this is reflected in the lending rates so that it can actually be felt by the people."