Inflation to drop to a 42-month low of 10.98% in july – FDC

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Analysts at Financial Derivates Company Limited (FDC) have predicted that headline inflation in July will slide to 10.98 per cent from 11.22 per cent National Bureau of Statistic (NBS) reported in June.

The NBS is expected to release headline inflation rate report this week.

According to them, If 10.98 per cent inflation rate predication is accurate, it will be the lowest level since January 2016.

“The moderation in the general price level would be largely underpinned by lower food inflation due to favourable harvest. Our forecast also points to a 0.16per cent decline in the month-on-month inflation to 0.91per cent (11.50per cent annualized). During our survey in July, we noticed that the prices of most of the commodities in the food basket declined,” analysts at FDC explained.

They explained further that, “Even though the projection means the CBN will be closer to achieving its inflation rate of six-nine per cent target, the probability that headline inflation will fall below 10per cent and stay there is unlikely at this point in time.

“This is because the economy will be impacted by the high liquidity resulting from the payment of the new minimum wage to grade 1-4 workers as well as the CBN’s effort to boost lending to the private sector.

“In spite of the adjustments in the exchange rate for converting import duty to N326/$, cost push factors were subdued in July, as the prices of white products such as air conditioners, washing machines and dishwashers remained flat. However, the impact of the adjustment could be felt in the coming months.

“The payment of the new minimum wage and arrears for grade 1-4 workers commenced in July. While this is expected to increase purchasing power and boost aggregate demand, its inflationary impact was to a large extent mitigated by the output from the harvests.”

On outlook, they added that, “With the commence-ment of the harvest season, we anticipate a further decline in commodity prices in coming months.

“This will help taper inflationary pressures from the boost in liquidity due to higher FAAC and minimum wage implementation. The major risk to our projections remains security challenges in the food producing states.

“The 2-month projections point to a likely inflection as the impact of the arrears on the minimum wage and the implications of the consequential costs on general prices in September.”

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