Market News

By Sylvester Enoghase

LAGOS  – Analysts say headline inflation may rise by 2.53% m/m in December, translating to a y/y rate of 34.91% on account of the ongoing festive demand, poor harvests, and high energy and transport costs. 

They also warned of increased pressure on Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI) in Nigeria, is in the offing due to the depreciation of the Naira and improvement in yield environment for short term play 

They maintain that private sector activities will remain hampered by persistent economic challenges, including high inflation, high energy and transportation expenses, and tight financial conditions. 

According to the recently released data by the National Bureau of Statistics (NBS), headline inflation rose for the third consecutive month, increasing by 72bps to 34.60% y/y in November (October: 33.88% y/y). 

Food prices (+77bps to 39.93% y/y) rose for the third month in a row primarily due to below-average harvests caused by persistent insecurity, /flooding in food-producing regions, and high input costs. 

Besides, core inflation (+38bps to 28.75% y/y) increased for the second consecutive month, reflecting the effects of the depreciation of the naira, elevated energy costs, and increased business operating expenses. 

On a month-on-month basis, headline inflation steadied at 2.64%, as higher food prices (+4bps to 2.98% m/m) offset a decline in core item prices (-30bps to 1.83% m/m). 

Cordros Researchers in their ‘Weekly Economic and Market Report’, stated that the headline inflation rose for the third consecutive month, increasing by 72bps to 34.60% y/y in November (October: 33.88% y/y). 

“While the naira appreciation may ease import costs, other factors such as festive demand, poor harvests, and high energy and transport costs could partially counteract this effect. Consequently, we expect headline inflation to rise by 2.53% m/m in December, translating to a y/y rate of 34.91%”, they argued. 

They noted that the recent CBN report indicated that private sector activities contracted for the second consecutive month, settling at 48.9 points (below the 50-point threshold) in November (October: 49.6 points), driven by weaker business activities in the industry and service sectors, despite improved activities in the agricultural sector. 

The services sector (47.4 points vs 50.0 points) contracted for the first time since May 2024, primarily reflecting weaker activities in the professional, scientific and technical services, and transportation and warehousing services subsectors. 

Besides, /the Industrial sector (49.3 points vs October: 49.3 points) remained in contraction as unabating inflationary pressures and high borrowing costs continued to weigh on production activities. 

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“Looking ahead, while we anticipate increased demand due to seasonality and the robust service sector activity to support near-term performance, 90we believe private sector activities will remain hampered by persistent economic challenges, including high inflation, high energy and transportation expenses, and tight financial conditions”, they said. 

 Mr. Adewale Oyerinde , Director General of Nigeria Employers’ Consultative Association (NECA), in a chat with Daily Independent, said private sector activities contracted for the second consecutive month, settling at 48.9 points (below the 50-point threshold) in November (October: 49.6 points),driven by weaker business activities in the industry and service sectors, despite improved activities in the agricultural sector from CBN report 

He added: “The services sector (47.4 points vs 50.0 points) contracted for the first time since May 2024, primarily reflecting weaker activities in the professional, scientific and technical services, and transportation & warehousing services subsectors. 

0 “It was expected that the naira depreciation will continue to boost total revenue collected from foreign sources, including oil receipts, import duty and foreign CIT payments”, he said. 

“The sharp uptick in capital inflows to fixed income instruments especially, money market as recently published by the National Bureau of Statistics (NBS) is not surprising given that the CBN relaxed the yield repression strategy to lure portfolio investors. 

“Higher consumer prices are expected to support increased VAT revenue collections. This is likely to support higher FAAC distributions to the three tiers of government in the near term”, he added. 

An executive director of a new generation bank in Nigeria, who craves anonymity, told Daily Independent that the Industrial sector with (49.3 points vs October: 49.3 points), from CBN report, remained in contraction as unabating inflationary pressures and high borrowing costs continued to weigh on production activities. 

000On the other hand, the agricultural sector PMI (51.0 points vs October: 50.3 points) printed above the 50-point threshold for the second month in a row, supported by the ongoing main harvest season, which bolstered farming activities. 

He noted that raising the value of the Naira will take a multi-pronged approach, including ensuring there is an increase in earnings, exporting more and driving infrastructural development through local and foreign direct investments. 

The analysts noted that: “One of the major issues is that Nigeria have to earn more foreign exchange to raise the value of the Naira, and so, have to do more business internally to raise the value of the Naira. So diversifying the economy is an important way to strengthen the value of the Naira”. 

“There will be a continuous increase in demand of the naira due to seasonality and the robust service sector activity to support near-term performance, and it is obvious that the private sector activities will remain hampered by the persistent economic challenges, including high inflation, FX inadequacies, escalating energy costs, rising transportation expenses, and stringent financial conditions”. 

Anwual Ibrahim Rafsanjani, Executive Director, of Civil Society Legislative Advocacy Centre (CISLAC),advocated the need for the Federal Government to ensure that Nigeria steadily move away from the current mono-product economy to increase the country’s foreign exchange earnings and raise the value of Nigeria’s currency. 

He added: “We expect the private sector activities at this season to boost higher consumer prices to support increased VAT revenue collections. This is likely to support higher FAAC distributions to the three tiers of government in the near term”. 

He said: “Increased demand due to seasonality and the robust service sector activity to support near-term performance, we believe private sector activities will remain hampered by persistent economic challenges, including high inflation, high energy and transportation expenses, and tight financial conditions”.