11 June 2018

Nigeria: Inflation to Drop Further to 27-Month Low

Photo: The Guardian
Inflation.

Ahead of the release of consumer price index by the National Bureau of Statistics (NBS), analysts have projected a further decline in the rate at which prices of goods and services rise in the country to further decline in May.

Inflation rate in the country has been on a steady decline since January last year when it reached a high of 18.72 per cent dropping to 12.48 per cent in April. Analysts are expecting the rate to further decline to around 11 per cent in May, making it the 16th consecutive decline since January last year.

Month on month inflation is however expected to rise by 1.24 per cent on the back of seasonalities such as the Ramadan sat and planting season induced food shortages. The prices of most of the food items that monitored by FSDH Research in May 2018 increased substantially.

According to the FSDH Research inflation watch, prices of dairy products and cereals rose during the month while vegetable oils and sugar prices remained under downward pressure. The Food and Agricultural Organisation (FAO} Dairy Price Index was up for the fourth consecutive month, recording an increase of 5.45 per cent between April and May.

Increased demand for products such as cheese, skimmed milk powder and butter contributed to the rise in the value of the Index. The FAO Cereal Price Index was up by 2.44 per cent, largely due to the increase in the prices of wheat, coarse grains and rice. However, the FAO Vegetable Oil Price Index was down by 2.58 per cent, primarily driven by a decline in the prices of palm, soy and sunflower oils occasioned by slow global imports demand and large inventories.

Analysts at Financial Derivatives Company Limited anticipates that that the declining trend in inflation is slowly reaching an inflection point, as month-on-month inflation, which is a better indicator of economic reality is anticipated to increase.

"This would be compounded by the impact of the Ramadan fast, planting season shortages and increased liquidity associated with the budget approval & implementation. Furthermore, the imminent presidential assent to the 2018 appropriation bill in June and the release of the authority to incur expenditure would exacerbate inflationary pressures, due to the corresponding increase in liquidity and forex demand," the analysts said.

Meanwhile, analysts say the increase in excise duty on alcoholic beverages and tobacco which took effect on June 4, 2018, is not expected to impact inflation since alcoholic beverages and tobacco account for a minuscule proportion of the food basket,

FDC analysts noted that notwithstanding "other potent factors which could trigger inflationary pressure such as growth in money supply, however this has been muted. Broad money supply grew at an annualized rate of 2.17 per cent in April.

"The proposed upward review in the minimum wage appears to be in limbo owing to the ambivalent statements by the government. This poses no risk to consumer price levels in the short term. However, as we approach the election period, the union's demand for a wage review will become more vociferous and affect the consumer price basket."

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