Inflation to further decline in August; commodity prices to ease in 4th Qtr- Analysts

Analysts expect Nigeria’s inflation rate to decline further when the August 2017 report is released, making it the seventh consecutive month that the country will witness a decrease in its Consumer Price Index, while also expecting that commodity prices might begin to ease towards the start of the fourth quarter owing to the extended rainy season.

The National Bureau of Statistics (NBS) had Monday released the CPI, which measures inflation, with the index dropping marginally from 16.1 per cent in June to 16.05 per cent in the month of July.

The NBS had stated that the drop in July was the sixth consecutive time that the index would be dropping since January this year.

Following the NBS report, analysts at the Financial Derivatives Company Limited predicted in their August 31, 2017 Economic Bulletin that the country’s headline inflation would slide marginally to 16.03 per cent in August.

“We forecast that headline inflation will decline slightly for the seventh consecutive month to 16.03 per cent, as base year effects wear out. Month-on-month inflation is also expected to slide to 0.99 per cent (12.55 per cent annualised) from 1.21 per cent (15.57 per cent annualised) in July,” they said.

FDC added, “We believe that this decline would support the sense of cautious optimism about the economy, invigorate policy maker enthusiasm and push up investor confidence in the markets.

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“We expect core inflation to marginally fall partly due to the stable exchange rate and the reduction in inventory cycles by manufacturers to reduce carrying costs. Manufacturers and retailers are already stocking up for a hectic December Christmas season.”

They observed that food prices were likely to remain trending downwards with some minor exceptions in processed goods and commodities such as rice and palm oil.

The report noted that the harvest season was anticipated to commence in the month under review, but emphasized that there would be a lag between the beginning of the harvest season and when the impact of increased supply would manifest.

It stated that commodity prices might begin to ease towards the start of the fourth quarter of 2017 because of the extended rainy season.

The FDC team also noted that the import substitution drive of the government supported by the relative stability in the foreign exchange market was expected to reduce import cost.

“However, the full impact might be delayed keeping imported inflation flat in the month of August,” they observed.
On the country’s economic outlook, the experts said, “There is some scepticism about the ability of the government to support the current foreign exchange policy.

“This is partly because of the cap on Nigeria’s crude oil output at 1.8mbpd (1.8 million barrels per day), as well as speculations of Nigeria being included in the output cuts at the September 22nd meeting in Vienna.”

 

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