Analysts Forecast Marginal Uptick in October Inflation

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MARKET INDICATOR

By Obinna Chima

As the National Bureau of Statistics (NBS) prepares to release the inflation figure for October 2016 today, based on its data release calendar available on its website, economic analysts have in separate reports predicted slight increase in the consumer price index (CPI).
The CPI had increased year-on-year to 17.9 per cent in September 2016.
Access Bank Plc’s Economic Intelligence Group in its forecast, anticipated that inflation rate (year-on-year) would accelerate to 18.2 per cent in October 2016.

\The bank explained that the methodology it adopted in arriving at the conclusion was based on an autoregressive analysis of past prices, “while it recognises all the assumptions used by the NBS in its computation of monthly composite consumer price index (CCPI).
Furthermore, the bank stated that the anticipated upward movement in headline inflation in October reflects increases in both food and core components of inflation, adding that the food component, which constitutes the bulk of the inflation basket was anticipated to exert significant pressure during the period under review.
“This expectation is based on an independent survey of some household food prices such as rice, flour, pasta, tomatoes, cooking oil etc. The core index should also move upwards due to cost push influences stemming from continued depreciation of the naira at the parallel foreign exchange market,” it added.

The naira shed 2.17 per cent of its value against the US dollar in the month of October to end at N470/$.
Access Bank’s analysts argued in the report that the country’s reliance on imports of raw materials, refined products and consumables, was an indication that the depreciation of the naira would continue to compound the effect of imported inflation.
“The steady rise in inflation rate could push cost of borrowing further up at the money market, particularly if the Central Bank attempts to curb inflation by mopping up liquidity. Higher yield demands are expected from investors as rising inflation rate moves real rate of return deeper into negative territory.
“Despite our outlook for inflation, we retain the view that the monetary policy rate will be held steady during the November MPC meeting. We foresee a congruence between the monetary and fiscal authorities in attempting to address the negative output growth in the past two

quarters,” it added.
On its part, the Financial Derivatives Company Limited, in its economic bulletin, also forecast that year-on-year headline inflation forecast for the month of October would increase marginally to 18.2 per cent.
“At its September meeting, the CBN expressed concerns about rising inflation, citing this as a reason for maintaining its contractive stance. 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.
“Consumer resistance is beginning to intensify as incomes and habits change. Prices of substitutes are beginning to climb whilst products with elastic demand are falling. Nigeria’s inflation in 2016 has arisen due to supply shocks.
“Typically, consumer prices tend to increase towards the end of the year due to rising demand for goods and services for the Christmas festivities. In some cases, artificial scarcity is created to push prices up. Furthermore, in anticipation of higher prices, consumers tend to revise their expectations and demand, thereby inevitably increasing prices. However, lower disposable income has reduced consumers’ ability to demand more. Thus, consumer resistance has become increasingly dominant in the market,” FDC states.

Similarly, FSDH Merchant Bank Limited anticipated an 18.17 per cent CPI in October, saying that the expected increase in the inflation rate would 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 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 44.44 per cent, 13.1 per cent, 8.33 per cent , 7.58 per cent and 5.93 per cent. While the prices of onions, yam, sweet potatoes, fish and garri were down by 20.58 per cent, 18.06 per cent, 13.89 per cent, 6.58 per cent and 1.6 per cent.

“The price of meat however, remained unchanged. The movement in the prices of food items during the month resulted in a 0.67% increase in our Food and Non-Alcoholic Index to 212.51 points. We also noticed increases in transportation; housing, water, electricity, gas  and other fuels divisions between September and October 2016,” they predicted.
In the same vein, Afrinvest West Africa Limited also expected that headline inflation would breach the 18 per cent mark to settle within the range of 18.1 – 18.3 per cent “due to low base impact.”
“Inflation is expected to stay high in the short term as further adjustments to fuel prices and FX rate remain inevitable,” they added.