Analysts Forecast Wide Gap of Inflation Increase in October


Kunle Aderinokun

Ahead of the release of consumer price index (CPI) data for October on Wednesday by the National Bureau of Statistics, analysts have projected that the gap of inflation increase would widen in the review month.

The firms of analysts, whose estimations were obtained by THISDAY are Dunn Loren Merrifield Asset Management Ltd, Financial Derivatives Company Ltd and FSDH Merchant Bank Ltd. Of the three firms, the least pace of increase in inflation projected is 27 basis points for October, which is 3 basis points higher than the 24 basis points recorded for previous month.

DLM forecast that CPI, which measures inflation would increase to 18.1 per cent year-on-year in October 2016; up by 0.27 per cent or 27 basis points from 17.9 per cent recorded in the preceding month. While FDC estimated that the headline inflation would rise marginally to 18.2 per cent, representing 0.3 per cent or 30 basis points increase from the previous month’s figures of 17.9 per cent, FSDH projected the October CPI to move up further to 18.17 per cent from 17.85 per cent of the previous month, translating to 32 per cent or 30 basis points increase.

This is in contrast to the situation in September when the CPI at 17.85 per cent (year-on-year), represented 24 basis points higher than 17.61 per cent in August 2016, which was a further reduction in the pace of increase compared to 48 basis points increase to 17.61 per cent in August over 17.13 per cent in July.

According to DLM, “Our model shows a movement in the food sub-index captured by “farm produce and processed foods” to 213.3points in October 2016 up from 182.6points in the corresponding period of the previous year. In addition, we expect a movement in the core sub-index to 205.4points up from 174.4points in October 2015. Hence, this translates into a food and core inflation of approximately 16.8 per cent and 17.8 per cent respectively in October 2016.

It recalled: “In line with our expectation, the headline inflation for September 2016 came in at 17.9 per cent; up from 17.6 per cent recorded in the preceding month .

This was supported by the rise in prices recorded in all divisions which contribute to the index. However, it was highlighted that the “communication‟ and “restaurants and hotels” divisions recorded the lowest rates of increase at 5.6 per cent and 9.6 per cent respectively.

Besides, FDC, which pointed out that, going by its estimates, “This will be the highest year-on-year inflation level in 11 years,” also forecast that, “a month-on-month inflation rate of 0.67 per cent, which if annualised is 8.38 per cent, approximately 1.92 per cent lower than the September’s level.”

Recalling that, “At its September meeting, the CBN expressed concerns about rising inflation, citing this as a reason for maintaining its contractive stance,” FDC said, “Given that there is major clamour for lower interest rates and a stimulus package as antidotes to the recession, the reduced monthly inflation rate may sound like music to the ears of the doves in the committee.”

In its own assessment, FSDH noted that, “The expected increase in the inflation rate will be driven by higher prices within the Food and Non-Alcoholic Beverages division, as well as increases in the energy and energy related prices.”

The FSDH analysts explained: “Our analysis indicates that the value of the Naira appreciated at both the inter-bank and parallel market by 0.91per cent and 2.35per cent respectively in October 2016. The Naira gained N2.81and N11 to close at US$/N308.81 and US$/N468 at the inter-bank and parallel market respectively.

“The appreciation recorded in the exchange rate in both markets between the two months under review should lower the pass through effect of imported inflation on domestic prices.

“The prices of food items that FSDH Research monitored in October 2016 moved in varying directions. The prices of tomatoes, vegetable oil, palm oil, rice and beans were up by 44.44per cent, 13.1per cent, 8.33per cent, 7.58per cent and 5.93per cent.

“While the prices of onions, yam, sweet potatoes, fish and garri were down by 20.58per cent, 18.06per cent, 13.89per cent, 6.58per cent and 1.6per cent. The price of meat however, remained unchanged. The movement in the prices of food items during the month resulted in a 0.67per cent increase in our Food and Non-Alcoholic Index to 212.51 points.

“We also noticed increases in Transportation; Housing, Water, Electricity, Gas & Other Fuels divisions between September and October 2016.

“Our model indicates that the price movements in the consumer goods and services in October 2016 would increase the Composite Consumer Price Index (CCPI) to 209.40 points, representing a month-on-month increase of 0.7per cent. We estimate that the increase in the CCPI in October will produce an inflation rate of 18.17 per cent.”