Analysts predict 11.8% slowdown in inflation rate

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By Kayode Tokede

Analysts at Financial Derivates Company (FDC) have predicted that inflation rate is expected to decline further to 11.8 per cent in May 2018, making 16th consecutive monthly decline and the lowest rate of inflation since February 2016.

The National Bureau of Statistics (NBS) had announced 12.48 per cent inflation rate in April and expected to announce Inflation rate for May this week’s Wednesday.

The analysts at FDC expressed that food and core indices to move in tandem with headline inflation.

According to them, “Conversely, month-on-month inflation is expected to rise to 1.28 per cent (16.45per cent annualized) after recording a marginal decline of 0.83per cent (10.45per cent annualized) in April.

“This is largely due to the spike in food prices. This increase was mainly due to a number of factors including the Ramadan fast, the commencement of the planting season and the herdsmen attacks in some northern parts of the country. The sharp increase in month-on-month inflation could signal an inflection point in the headline inflation.

“If our forecast is accurate, it increases the possibility of a rate cut at the next MPC meeting in July. Even though the policy rate has remained unchanged at 14per cent pa, effective T/bill rates have fallen sharply by 371 basis points this year.

“In spite of lower interest rates, credit to the private sector (CPS) has remained constrained. There is a growing level of risk aversion by the Nigerian banks. In April, CPS declined by 18basis points to N22.25trillon from N22.29trillion in 2017.

“The CBN is of the opinion that cutting rates would boost liquidity which could trigger inflationary pressures. However, a reduction in interest rates will support increased lending to the private sector. The availability of credit to the real sector will spur increased production and boost aggregate output. In the long run, the impact is lower prices and inflation.”

They anticipated that the declining trend in inflation is slowly reaching an inflection point, as month-on-month inflation, which is a better indicator of economic reality is anticipated to increase.

“This would be compounded by the impact of the Ramadan fast, planting season shortages and increased liquidity associated with the budget approval & implementation. Furthermore, the imminent presidential assent to the 2018 appropriation bill in June and the release of the authority to incur expenditure would exacerbate inflationary pressures, due to the corresponding increase in liquidity and forex demand.

“The new excise duty on alcoholic beverages and tobacco took effect on June 4th. Since alcoholic beverages and tobacco account for a minuscule proportion of the food basket, we do not expect any significant impact on inflation. This notwithstanding, there are other potent factors which could trigger inflationary pressure such as growth in money supply, however this has been muted. Broad money supply grew at an annualized rate of 2.17per cent in April.

“The proposed upward review in the minimum wage appears to be in limbo owing to the ambivalent statements by the government. This poses no risk to consumer price levels in the short term. However, as we approach the election period, the union’s demand for a wage review will become more vociferous and affect the consumer price basket,” FDC explained in its Inflation rate for May.

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