Financial analysts have said that inflation rate will hit the 12 per cent mark before the end of the year.

Analysts at Financial Derivatives Company Limited on Tuesday in a report made available to our correspondent said using trend analysis, it was estimated that Nigeria’s headline inflation would rise considerably by 0.77 per cent to 12.47 per cent in November, from the 11.7 per cent recorded in October.

The analysts added that the increase was as a result of a rise in the consumer price index by 0.86 per cent to 140.25 points in November from 139.1 points in October.

“The trend analysis shows a disconnect between the direction of our urban inflation and the headline inflation. In our opinion, the increase is likely to be as a result of the spill-over effect of the floods and limited supply to the markets due to distribution, logistics from the farms,” it added.

The report, however, showed that there would be a decline in the inflation rate for December.

It states, “Further study of the relationship between FDC’s Lagos urban inflation and the National Headline inflation indicates a 30-days (1 month lag) period for the headline inflation to move in the same direction as the FDC’s urban inflation after a disconnect is recorded. Hence, if this trend is maintained and other things being equal, we should see a decline in the inflation rate for December.

“All things being equal, the continuous growth in money supply and slow growth in Gross Domestic Product supports our expectation of a likely rise in the inflation rate for the remainder of 2012. Despite the predicted rise in inflation, GDP growth is expected to rise to 6.71 per cent and would likely grow above money supply which will contribute to a single digit inflation rate in 2013.”

On interest rate, the analysts noted that all pointers were in favour of a declining interest rate environment in 2013 and the need to boost growth and lending to the real sector.

“The current contraction policy stance has been in play since January 2011 when the Monetary Policy Rate was raised by 275 basis points. Our view is that the overdependence on interest rates as a tool for adjustment is precarious. In 2013, the CBN will have to moderate its stance to allow interest rates decline and control money supply, thus boosting economic growth,” it added.

Source: Punch