Inflation to Maintain Downward Streak in April, Say Analysts
With the expected Tuesday’s release of numbers for April consumer price index (CPI) by the National Bureau of Statistics in view, economic analysts and market watchers have released their projections for the index, which gauges inflation. Essentially, they expect to see a continuation of the downward trajectory in the index, which began in February when it plunged to 17.78 per cent (year-on-year) from 18.72 per cent in January and subsequently dropped to 17.26 per cent in March. NBS had attributed the decline for the two consecutive months to the effects of stabilising prices in already high food and non-food prices as well as favourable base effects over 2016 prices.
While The Economic Intelligence Group of Access Bank Plc forecast that the CPI would drop further to 17.05 per cent in April from the 17.26 per cent level it stood in March, analysts at FSDH Research has estimated that the CPI would be 17.11 per cent when NBS released the figures on Tuesday. Also, the CEO, Nigeria Competitiveness Council of Nigeria (NCCN), Matthias Chika Mordi, who is also CEO, Accender Strategies, estimated a CPI of 16.75 per cent for the month in preview with a 25 basis points error of margin, based on macroeconomic indicators and Q1 surveys.
According to the Access Bank analysts, “As usual, our methodology adopts an autoregressive analysis of past prices, while it recognizes all the assumptions used by the National Bureau of Statistics (NBS) in its computation of monthly composite consumer price index (CCPI).”
The analysts noted that the group’s inflation forecast was driven chiefly by anticipated downward movement in the food and core sub-indexes. Besides, they identified price movements for major commodity groups in the food basket which makes up over half of the CPI basket remained muted in April.“Based on an independent survey, vegetable oils, rice, and flour trended downwards, while the price of garri, potatoes and noodles were stable.”
Similarly, they stated that, “Core inflation, which excludes the prices of volatile agricultural produce, is expected to extend its downward trend in April. This partially reflects the effects of currency appreciation in the parallel market. Month-on-month, the naira appreciated by 8.32 per cent as the Central Bank maintained the tempo of interventions in the forex market.”
On probable market impact of the projected further inflation decline, The Economic Intelligence Group noted that, “With short-term secondary market T-bill yields currently around 16 per cent – 19 per cent, the downtick in inflation may prompt investors to take positions in short term securities and divest from equities.
They also said, “Despite the easing inflation, we expect the apex bank to maintain rates in an attempt to anchor the downward inflation trend. In the March Monetary Policy Committee (MPC) statement, the CBN governor made it clear that loosening the policy rate will worsen price pressures, while tightening of rates would be detrimental to already-weak economic growth.”
As for the FSDH analysts, they said, “Although we noticed increases in the prices of food and non-food classification for the fourth consecutive month, the base effect in the CCPI in April 2016 will be responsible for the drop in the inflation rate.”
According to them,“The Naira gained by 0.16 per cent at the inter-bank market to close at US$/N305.85 while it lost 0.25 per cent at the parallel market to close at US$/N396 at the end of April. The fall in the international prices of food helped to counter the effect of the depreciation in the value of the Naira at the parallel market.
“The appreciation of the Naira in the inter-bank market and the drop in the prices of food at the international market led to a moderation in the prices of consumer goods in Nigeria. The prices of food items that FSDH Research monitored in April 2017 moved in varying directions. The prices of tomatoes, garri, sweet potatoes, beans, Irish potatoes and yam were up by 56.78 per cent, 8.47 per cent, 6.94 per cent, 6.08 per cent, 5.64 per cent and 3.33 per cent respectively.
“Meanwhile, the prices of onions, vegetable oil, palm oil, rice, meat and fish were down by 27.11 per cent, 7.78 per cent, 6.67 per cent, 2.48 per cent, 2.22 per cent and 1.33 per cent respectively. The movement in the prices of food items during the month resulted in 2 per cent increase in our Food and Non-Alcoholic Index to 234.34 points.
“We also noticed increase in the prices of Housing, Water, Electricity, Gas & Other Fuels divisions between March 2017 and April 2017. Our model indicates that the general price movements in the consumer goods and services in April 2017 would increase the Composite Consumer Price Index (CCPI) to 226.01 points, representing a month-on-month increase of 1.48 per cent.
“We estimate that the increase in the CCPI in April will produce an inflation rate of 17.11 per cent lower than the 17.26 per cent recorded in March 2017.”
In their view, analysts at Eczellon Capital expect the April 2017 inflation rate (year-onyear)“to ease slightly given the marginal drop in the prices of some food and non-food items and CBN’s intervention in the Forex market.”
“Consequently, the Apex Bank had introduced an Investors and Exporters Window (IEW) poised to boost liquidity in the FX market and ensure timely execution and settlement of eligible transactions for manufacturers and related constituents. Prior to CBN’s intervention, the cost of accessing the FX was extremely high as it was mirrored in the prices of items.“Conversely, participants in the FX market are now accessing the FX via the CBN’s IEW at a relatively affordable price and without exhausting same. By implication, the IEW has led to the reduction in cost of production and has translated to the marginal decline in the prices of items. Additionally, the recent manufacturing PMI for April 2017 indicates that the manufacturing sector had advanced at 51.1 index points showing expansion in the manufacturing sector after three months of contraction, though the non-manufacturing sector dragged sluggishly at 49.5 relative to 47.1 index points. Subsequently, the improvements in these sectors spur us to believe that the costs of items in the market are retracting gradually,” the analysts explained.
Furthermore, the Eczellon Capital analysts added,“the historical behaviour of Nigeria’s inflation rate over the past three months had shown a downward trajectory of 0.94 per cent point and 0.52 per cent point for February and March apiece. For that reason, we foresee the CPI plunging further in April 2017.”
Also, in his projection, Chief Executive Officer, The CFG Advisory Ltd, Adetilewa Adebajo, is hopeful of a continuity in the downward trend in CPI “provided the CBN continues with its policies aimed at improving forex liquidity, Naira/$ rate appreciates further, and fiscal stimulus is maintained.”
“We can therefore estimate a further downward trajectory in consumer price index, however, by smaller percentage points relative to the first two months, due to relative stability in prices of some food items and falling demand for other items.
“Month-to-Month inflation still on the rise. There appears to be the need to monitor CPI for the next few months to fully ascertain the downward trend in inflation,”Adebajo pointed out.
“Month-to-Month inflation still on the rise. There appears to be the need to monitor CPI for the next few months to fully ascertain the downward trend in inflation,”Adebajo pointed out.