Analysts Predict Slight Drop in December 2016 Inflation

Analysts at FSDH Merchant Bank Limited have predicted that the December 2016 inflation rate (year-on-year) would drop marginally to 18.44 per cent from the 18.48 per cent recorded in the month of November 2016.

They held the view that the expected decrease in the inflation rate would be driven by lower than anticipated price increases within the food and non-alcoholic beverages division, as well as the base effect.

The National Bureau of Statistics (NBS) is expected to release the inflation rate for the month of December 2016 on January 16.

The monthly Food Price Index (FPI) released yesterday by the Food and Agriculture Organisation (FAO) showed that the FPI remained relatively the same in December. The index was marginally down by 0.07 per cent, compared with its revised November figure. Year-on-year, it grew by 12.02 per cent.

According to the FAO, the performance of the Index was largely driven by a sharp fall in sugar prices.

“Our analysis indicates that the value of the naira remained stable at the inter-bank market while it depreciated at the parallel market by 2.65 per cent to close at $/N491 from $/N478 at the end of November. The depreciation in the parallel market led to an increase in the prices of imported consumer goods in Nigeria between the two months under review.

“The prices of food items that FSDH Research monitored in December 2016 moved in varying directions. The prices of vegetable oil, palm oil, meat, fish, sweet potatoes, onions and Irish potatoes were up by 25 per cent, 21 per cent, 14.2 per cent, 12.5 per cent, 7.1 per cent, 4.2 per cent and 4.17 per cent respectively. The prices of tomatoes and beans were down by 5 per cent and 4.49 per cent respectively. The prices of rice, garri, and yam remained unchanged.

“Our model indicates that the price movements in the consumer goods and services in December 2016 would increase the Composite Consumer Price Index (CCPI) to 213.35 points, representing a month-on-month increase of 0.96 per cent . We estimate that the increase in the CCPI in December will produce an inflation rate of 18.44 per cent,” they added in a report.

Also, the Financial Derivatives Company Limited forecast a decline in headline inflation rate to 18.3 per cent, the first change in the YoY direction in 14 months.

“If our forecast is correct, this will be a 0.18 per cent decline from November’s inflation rate. This is the first time that headline and month-on month inflation will switch trajectories. This can be attributed to waning base year effects. However, we do not expect this development in the monthly rate to be a permanent one.

“The change in direction is what the fiscalists and doves in the monetary policy committee need to support arguments for an accommodative monetary policy stance to complement the fiscal stimulus,” the research and investment firm stated.

However, in their own estimate, the Economic Intelligence Group of Access Bank Plc forecasts inflation rate (yearon-year) in December to remain at 18.5 per cent, the same as in November.

The Access Bank analysts explained: “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 moderate easing of pressures on the parallel FX market in December following the central bank’s special intervention FX auctions in late November and early December contributed to the stability in seen in the price index in December.

“Price movements for major commodity groups in the food basket remained unchanged, while the slight price increases in some commodities were offset by downward price adjustments in others. Based on an independent survey, vegetable oils, tomatoes, and noodles saw slight uptick in price, while the price of rice, plantain and potatoes trended downwards.