Nigeria’s inflation to remain high at an average of 17% in 2017, despite deceleration H1, says EIU

The Economist Intelligence Unit (EIU), a member of The Economist Group, has projected that Nigeria’s inflation figures would remain high at an average of 17 percent for full year 2017.

In a July Nigeria country report released by the EIU and seen by Businessamlive, the EIU said the effects of currency devaluation and efforts by the authorities to rein in the subsidy bill and boost power tariffs to cost-reflective levels will see inflation edge up again after deceleration in the first half of the year.

The report noted that though currency stability improved in the first half of 2017 after the massive volatility seen in 2016, additional naira depreciation is expected later in 2017, but average inflation will ease, only moderately, to 13.4% in 2018.

“Pre-election spending and a further drop in the naira on the back of weaker oil prices mean that inflationary pressures will stay high in 2019, before it falls back slightly in 2020 21, to an annual average of 10.8%, as tighter fiscal and monetary policy takes effect,” the report explained.

According to data released by the Nigerian Bureau of Statistics (NBS), inflation has decelerated from a high of 18.72 percent in January to 16.25 percent in May due largely to improved liquidity in the forex market, which has brought down the cost of imports. Nigeria relies more on imports for its consumables.

However, local research analysts are optimistic that the deceleration would continue in June.
Anticipating the release of data by the NBS for June, analysts at FSDH research have projected a further drop in inflation figures for the month of June.

“We expect the June 2017 inflation rate (year-on-year) to drop to 15.64 percent from 16.25 percent recorded in the month of May 2017,” they said, attributing their prognosis to the moderation in food prices in the month of June.

“The increase in the price of food items moderated in the month of June compared with May 2017. We also observed increases in some divisions that contribute to the Core Sub-Index, with the highest price observed in the clothing and footwear divisions.”

Based on the data release calendar on the National Bureau of Statistics (NBS) website, the inflation rate for the month of June 2017 would be released on July 17, 2017.

On the external sector, the EIU report indicated that although oil prices in the second half of the year would be up on the nadir seen during 2016, they will still be well below the averages recorded in the preceding years.

“The net effect is a current account close to balance in 2017- ­21—a stark contrast to the enormous surpluses witnessed during the last commodity boom.”

The EIU specifically noted that there would be little progress in terms of diversifying the country’s hydrocarbons-dominated export base, projecting that import growth will start to pick up from 2017, in line with subdued, albeit improving, economic prospects and an ambitious government spending agenda.

It, however, stated that the import bill in 2017 will still be more than 25 percent below the average value recorded in 2011 through 2014, when the oil boom and a stronger naira allowed a spending splurge.

“Trade-related services imports and profit repatriation (including some delayed from 2016 by dollar scarcity) will pick up in 2017-18 but—as with goods imports—will remain below the peaks seen during the last oil boom. Meanwhile, workers’ remittances will remain an important source of hard currency,” the report stated.

Overall, the EIU expects Nigeria’s current account to move into small deficits in 2019 amid worsening global conditions and a subdued oil price after a surplus equivalent to 1.1 percent of GDP in 2017, adding that the deficit will then move back to a small surplus of 0.2 percent of GDP in 2021 as global economic health (and with it oil prices) improves.