Analysts project 17% inflation rate in 2021
By Kayode Tokede
Analysts at InvestmentOne Research have projected inflation rate to around 17per cent from 15per cent in 2021, higher than the average of 13.20per cent in 2020.
Recently, the National Bureau of Statistics released the inflation figure for the month of February 2021 which further showed the pressure on consumer prices as the headline inflation hit a 4-year high of 17.33per cent from 16.47per cent in January 2021.
The food sub index remained the main driver of the uptick in headline inflation. The sub index rose by 21.79per cent y/y, the highest in over 10years, as challenges associated with food supply chain persisted.
They expressed that, “Going forward, we believe food sub index may maintain its fast uptrend on the back of the escalating insecurity in the country as farmers vs herdsmen crisis persists.
“Overall, we expect inflation to remain high for a while before slowing down due to high base effect. On the average, we have adjusted our base case inflation expectation to around 17 per cent (from 15per cent) in 2021 higher than the average of 13.20per cent in 2020.”
In the outgone month, the rally in the crude oil market slowed down as Brent shed 3.92per cent m/m due to rising cases of COVID-19 and slowdown in vaccination rate due to fears of some side effects of shots, particularly Astrazeneca.
Elsewhere, the unemployment rate for Q4 2020 as reported by the National Bureau of Statistics stood at 33.3 per cent, an increase of 620bps from 27.1 per cent recorded in Q2 2020.
According to analysts at InvestmentOne Research, “Going forward, we expect oil output to improve as OPEC relaxes its output cap on the back of recovery in global economy. Nonetheless, Nigeria still has to comply with OPEC cap of 1.5million barrels per day (excluding condensates).
“We expect the Nigerian economy to sustain positive growth in Q2 2021 as Non-oil sectors rebounds due the low base effect.
“In the outgone month, we saw the country continue its struggles to balance the scale of rising oil prices and the attendant effect on the landing cost of fuel.”
Also, Brent crude price was majorly volatile as factors such as vaccine optimism, OPEC supply cuts and lockdown measures were overshadowed by worries of rising Covid-19 cases and a shift towards loosening OPEC+ supply cuts.
In its second meeting in 2021, the MPC voted to maintain Monetary Policy Rate (MPR) at 11.50%, in line with our expectation.
The fixed income market during the month of March 2021 was characterized with sustained increase in yields on FI instruments, albeit at a slower pace compared to February.
They explained that, “Going forward, it is likely that yields in the fixed income space continue trading at current levels. In the outgone month, Brent crude price shed 3.92per cent to close the month at $63.54/barrel, after reaching as high as $70/bbl during the course of the month.”
In the local scene, the CBN introduced the ‘Naira 4 Dollar scheme’ in a bid to further improve dollar inflow into the parallel market.
“We posit that the medium to long-term outlook for the naira remains weak on the back of unfavourable fundamentals underpinned by overdependence on volatile oil receipts.
“With a slow-down in the rise in interest rates due to the DMO’s stance in managing the FG’s borrowing costs, we expect investors to pick up more quality names in the equities market in a bid to attain positive real returns, which is unattainable in the fixed income market given fast rise in inflation level,” they added.
