Nigeria’s economy may witness or declining rates of inflation, with June figure expected to decline to 15.5 per cent from 15.5 per cent in May after a rise in headline.
Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, who made this known, said: “We are projecting inflation in June to drop from 15.6per cent to 15.5 per cent. If this estimate turns out to be accurate, it will raise some fundamental questions as to the direction of inflation and possible level of interest rates in the money markets.”
Rewane said headline inflation had almost been a loose cannon, defying most rules of economic gravity and logic. The root cause of the near hyper inflation rate, he said, can be traced to supply shocks at-times attributable to artificial scarcity compounded by uncertainty in the foreign exchange (forex) markets.
“Economic history has shown that disinflation (a period of declining inflation) is usually a result of adaptive expectations. The theory of adaptive expectations assumes that people form their expectation of future inflation on the basis of previous and present rates of inflation and gradually change their expectations as experience unfolds.”
“The theory was advanced and popularised by Milton Friedman, the Nobel economist from the University of Chicago,” he said.
According to Rewane, this theory is applicable in Nigeria today because of the price trend since February. Consumers increased their demand for products out of unavailability and fear that prices will continue to skyrocket. But by April through May, aggregate demand curve had shifted inwards because of the income constraints.
He explained that looking at consumer price movement, the anecdotal evidence shows that more price elastic commodities hit a brick wall and started declining in June.
