Analysts Upbeat Inflation Will Fall Below 13% in April


Kunle Aderinokun

Ahead of the Thursday release of the data for Consumer Price Index by the National Bureau of Statistics, economic and financial analysts have projected that the downward streak the CPI had maintained since the last 15 months, would continue in April, with the index, falling below the 13 percentage mark.

In their research, analysts at The Economic Intelligence Unit of Access Bank Plc forecast that index, which measures inflation would ease to 12.56 per cent in April from 13.34 per cent in the previous month.

While their counterparts at FSDH Research department of FSDH Merchant Bank predicted that the CPI would fall to 12.43 per cent, those at Cordros Capital forecast that the rate would drop to 12.57 per cent.

“The Economic Intelligence Group forecasts inflation rate (year-on-year) in April to sustain the downward trend started last year, easing to 12.56 per cent compared to 13.34 per cent in March. Our methodology adopts an autoregressive analysis of past prices, while it recognises all the assumptions used by the National Bureau of Statistics (NBS) in its computation of monthly composite consumer price index (CCPI),” the Access Bank strategists noted.

They explained that looking at the drivers, research group’s analysis indicated that the slower inflation rate in April reflected a moderation in food prices and continued stability in the currency. According to them, “Food inflation, which makes up 51.8 per cent of the CPI basket continued its descent in April. Based on our survey, this mainly reflected declines in prices for staples such as yam and Irish potato which continue to benefit from robust supplies to the market from barns across the country as well relatively stable transport costs in the month. Processed foods such as pasta and milk also nudged slightly lower, enjoying support from stable transport prices.”

The analysts also reasoned that, “April’s easing of price pressures also reflected stability in the core index which excludes farm products and energy prices, owing to improved FX liquidity and sustained CBN interventions. At the parallel market, the Naira closed at N362/$ in the parallel market on April 30th same as a month earlier.”

On probable market impact points, the Access Bank analysts believed, “Treasury bill yields are likely to contract further, as market players react to declining inflation. The yields on the 3- and 6-month treasury bills settled at 10.72 per cent and 11.02 per cent respectively on April 30th, compared with 14.43 per cent and 14.97 per cent in that order on March 29 th.”

While having the conviction that, “continued slowdown in the price pressures supports the case for less restrictive monetary policy,” they however believed, “the monetary regulator may likely wait to see inflation trend below 12 per cent before commencing easing.”

Besides, they stated that, “With no change in the benchmark rate anticipated, we expect the CBN to continue issuance of OMO and Stabilisation Securities with focus on curbing naira liquidity to manage USD demand.”

As for the analysts at FSDH Research, they posited that, “Despite the increase recorded in the prices of some food and non-food items, the base effect of the Composite Consumer Price Index (CCPI) in April 2017 will depress the inflation rate.”

“Our analysis indicates that the value of the Naira depreciated at both the Nigerian Autonomous Foreign Exchange (NAFEX) and parallel markets. The value of the Naira lost by 0.09 per cent and 0.14 per cent to close at US$/N360.17 and US$/N363 respectively at the NAFEX and parallel markets at the end of April. The rise in the international prices of food coupled with the marginal depreciation in the value of the Naira led to an increase in the prices of imported consumer goods in Nigeria between the two months under review.

“The prices of certain seasonal food items we monitored appreciated in April 2018, leading to 0.86 per cent increase in our food and non-alcoholic index. This Index increased year-on-year by 14.71 per cent, up from 234.39 points recorded in April 2017. We also observed an increase in the prices of Transport and Housing, Water, Electricity, Gas & Other Fuels divisions between March and April. We estimate that the increase in the CCPI in April would produce an inflation rate of 12.43 per cent, lower than the 13.34 per cent recorded in March,” the FSDH analysts explained.

In the same vein, Cordros Capital noted that the moderating inflation rate, which it estimated at 12.57 per cent for April in addition to continued signals of monetary easing and the federal government’s new debt management strategy, would remain the “key drivers of bond yield movement in the near-to-medium term.”