Inflation rate to tick up by 0.08% in October – Analysts

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Analysts at Meristem Research have predicted that inflation rate might appreciate by 0.08 per cent in October to 11.32per cent over border closure that tends to hits hard on food prices.

The Lagos-based company in its latest report said, “In August, we witnessed a decline in Food prices as a result of the harvests. In September, the impact of the land border closure announcement began to be felt in commodity prices, triggering a 22basis points uptick in Consumer Price Index (CPI).

“Data from our most recent survey of commodity and food prices suggests a significant expansion in the prices of staples such as Rice, Poultry and Oil in October. Just before announcement of the border closure in August, a 50kg bag of Rice retailed for c. N12,000.”

The company noted that as the full effect of the closure set in, prices surged by between 75per cent and 100.00per cent to N21,000 and N24,000 per bag.

They explained that Poultry products (Chicken and Turkey) and Oils have also recorded average price expansions of 33.00per cent and 17.00per cent respectively over the same period.

“Combined, these items formed the strongest inflationary pressure points, as prices of other local staples remained relatively stable.

“CBN’s Purchasing Manager’s Index also supports the view that inflationary pressures are building; PMI for October increased to 58.2 from 57.7 in September and we envisage that the imminent upward review in energy tariffs and extension of the border closure period to January 31, 2020 should sustain pressure on the CPI in the near term.

“Following our evaluation of primary inflationary triggers in the economy, we forecast that headline inflation will tick up by 0.08per cent YoY, to 11.32per cent for October 2019.”

They explained that, in October, the International Monetary Fund (IMF) released its latest revision of the World Economic Outlook amidst a backdrop of rising global trade barriers and a downturn in global manufacturing activity.

According to Meristem Research, “The Fund has now pegged global growth at three per cent in 2019, a significant downgrade of 3.3per cent from April, 2019.

“Much of the deterioration in global growth is attributed to the protracted Sino-US trade spat and geopolitical tensions elsewhere in the Middle East and Asia.

“To this end, major central banks around the world have maintained their accomodative stance in a spirited bid to boost economic growth. In October, the US Federal Open Market Committee (FOMC) cut rates to between 1.50per cent -1.75per cent, while the ECB maintained status quo (-0.50) from its last meeting in September.

“In Nigeria, the Monetary Policy Rate remains at 13.50per cent, with the monetary authorities keen to achieve the dual objectives of growth and price stability.

They added that, “However, the Central Bank continues to pull on other levers such as restriction of domestic participation in Open Market Operations (OMO) and higher Loan-to-Deposit Ratio (LDR) floors for Banks, to stimulate growth.

“On the currency front, the Naira remained relatively stable in October, with gains of 0.03per cent against the U.S dollar to close at N362.66/USD in the I&E window, leading to an expectation that increases to the core index will be marginal.

“However, the FAO’s Food Price Index ticked up by 5.97per cent year-on-year in October – the third consecutive month of increases, largely due to higher Meat (+13.87per cent), Dairy (+5.58per cent) and Oils (+2.64per cent) prices.

“While this should ordinarily portend intensified inflationary pressures, owing to Nigeria’s large food import bill, the closure of the country’s land borders has emerged as the major upside risk to inflation.”

 

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