By Omodele Adigun
As Nigeria’s inflation rate finally settled at 15.75 per cent in December 2020, the citizenry have been forewarned to prepare for the worst this 2021 as inflation would hover around 16.6 per cent before tapering to15.43 per cent by the year end.
This was the consensus of analysts at Cordros Scurities Limited in their report, ‘Nigeria in 2021: Positioning in the new normal’, unveiled at a webinar recently.
Its Head of Research & Strategy, Mr. Jolomi Odonghanro, who presented the report, stated that the inflationary pressure would persist in 2021as several factors would shape domestic prices. He listed the factors as persisting foreign exchange (forex) supply constraints, electricity tariff hikes, Naira devaluation, market determined fuel prices and land border closures.
He explained: “In 2020, the Central Bank of Nigeria (CBN)’s forex demand management strategy had spillover effects on importing raw materials for production. As such, we believe the impact of the forex supply challenges has permeated into higher domestic prices. Although we expect the forex supply challenges to linger in 2021, we do not expect the impact to be as pronounced as 2020.”
On electricity tariffs, he said: “After suspending implementing the service-reflective electricity tariff for three weeks, the NERC (based on the joint agreement between the organised labour and the Federal Government) asked the power Distribution Companies (Discos) to begin the implementation of a revised electricity tariff starting from November 2020. We note that the updated tariff was revised downwards compared to the initial hike across most service bands.
On “Naira devaluation, we expect a further devaluation of the currency in 2021 based on our expectation of limited dollar inflows amid rising demand for FX to meet external obligations.
“As for market determined fuel prices, we expect crude oil prices to average between $45.00 and $50.00/bbl. Consequently, we expect PMS prices to remain rangebound (N165-N175/litre), especially with the N5.00 implicit subsidy recently announced by the government. However, risks to PMS prices are tilted to the upside as a devaluation of the currency would drive prices higher (as long as oil prices don’t fall). An increase in PMS prices would negatively impact transport prices.
“Land border closures: The uptrend in inflation begun when the borders were shut in August 2019, a phenomenon that continued through 2020. Food prices hit a 32-month high in October, escalated by Covid-19 induced supply chain disruptions. Hence, we are of the view that the recent re-opening of the borders will help in easing food price pressures over 2021.”
In his address at the 55th Annual Bankers Dinner last November,the Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele, said Inflationary pressure persisted in 2020 due to several factors.
He added: “In addition to the disruption to global and domestic supply chains as a result of COVID-19, inflation was exacerbated by the increase in Value Added Tax (VAT) rate, petroleum prices, electricity price adjustments, farmer-herder clashes, exchange rate adjustment, and flooding that occurred in many parts of our farm belt areas. Inflation in October 2020 stood at 14.2 per cent.
“We however expect inflation to begin to moderate by the first half of 2021 as efforts are being made to enable significant cultivation and production of key staple items in the dry season.”