Just as forecasts foretold, January inflation figures dropped sharply last week to nine per cent, signalling the first single-digit in almost two years.
This was in line with analysts' prediction that inflation would start and close the year on a single-digit. According to the National Bureau of Statistics (NBS), the major movement of headline index from 12.0 in December to 9.0 in January was largely attributed to base effects, a result of higher price levels in the previous year, implying that the year-on-year changes exhibited this year would be subdued.
The last time the inflation rate recorded single-digit was in August 2011, when headline Consumer Price Index (CPI) stood at 9.3 per cent, it however could not be sustained beyond a month as it quickly went up by 100 basis points to 10.3 per cent in the following month.
Meanwhile, if the predictions of analysts are anything to go by, Nigerians can expect a better economy in the years to come as their predictions of a falling inflation rate would lead to falling interest rates as well as rising reserves amongst others.
Being optimistic, the analysts see ahead a declining inflation. Although it had begun a downward slide in 2012 due to monetary tightening policies of the Central Bank of Nigeria (CBN), inflation went beyond 12 per cent during the year. The rise was of course a ripple effect of the flooding of major farm areas across the country and a subsequent rise in the prices of foodstuff.
With a nine per cent inflation in January, a single-digit inflation as low as 8.5 per cent had been predicted for this year and the figure is expected to continue to decline to 6.10 per cent over the next five years.
For Nigerians, single-digit inflation means more purchasing power, growing industries, lower cost of borrowing, reduced unemployment, all of which are factors that would lead to economic boom and attract more investments into the country.
Already with the announcement, the yields on bonds as well as interbank lending rates have continued to tumble, and if the single-digit inflation is maintained along with a stable foreign exchange, the CBN is expected to ease monetary policies.
The apex bank had kept benchmark lending rate at 12 per cent as a measure to stem the rising inflation, increasing the cost of borrowing, especially for the real sector which is a major driver for any growing economy.
At its next Monetary Policy Committee (MPC) meeting analysts expect the CBN to bring down benchmark interest rate, which should make borrowing from banks easier for the real sector. The ripple effect of this will be increased business activities and rising employment rate.
However, unforeseen natural disaster, devaluation of the local currency, as well as excessive recurrent government spending may put inflationary pressure on the economy.
Money supply plays a large role in inflationary pressure as well. Monetary economists believe that if the government does not control the money supply adequately, it may actually grow at a rate faster than that of the potential output in the economy, or real GDP. The belief is that this will drive up prices and hence, inflation begins another climb up.
Government spending is more likely to rise this year if the presidency succumbs to the $79 per barrel benchmark proposed by the legislature and the state governments' insistence on the continued sharing of the funds in the Excess Crude Account (ECA).
If this happens, there would be increased spending by the government leading to too much money chasing few goods- increased inflation. Allocations from the Federation Account increased by 23 per cent in the last quarter of last year as N741.19 billion was shared amongst the three tiers of government.
According to the Director- General of the West African Institute for Financial and Economic Management, Professor Akpan Ekpo, the inflation rate is more likely to depreciate further 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."
"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," Professor Akpan stated.
Also speaking, Henry Boyo, an economist, noted that while the decline in inflation rate to single-digit is a step in the right direction, there is need to put in place policies and measures that would ginger further decline to a conducive creeping inflation level of two or three per cent.
He stated that while a single-digit inflation rate is good for the economy, at nine per cent, there is room for improvement. He said an issue such as the constant excess liquidity in the system ought to be addressed if the country was to maintain the single-digit inflation rate.