FSDH forecasts May inflation at 16.13%

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By Adaeze Okechukwu

DESPITE the significant increases in retail prices, a year-on-year (YoY) tracking of Nigeria’s inflation factors indicates that base effects would yield a huge drop in headline index to 16.3 per cent for the month of May 2017, a massive 94 basis point deceleration from 17.24 per cent recorded in the preceding month.

According to a research report by FSDH Merchant Bank Limited, the YoY decline is as a result of the base effect from the increase in the pump price of Premium Motor Spirit (PMS) in May 2016 despite the elevated consumer prices recorded in May 2017. The sharp increase in the prices of consumer goods in May 2017 show that inflationary pressure is persisting across Nigeria’s markets and macroeconomic fundamentals.

At the backdrop of this domestic price index, the monthly Food Price Index (FPI) released by Food and Agriculture Organization (FAO) of the United Nations, indicated that the Index rebounded in May 2017 after three months of consecutive decline. The Index averaged 172.6 points, which was 2.19 per cent higher than the revised value for April 2017 as all the sub-indices increased except sugar.

The continued fall in the price of sugar is due to the weak global import demand, improved supply conditions in the main sugar producing regions in Brazil and the sudden depreciation in currency of the Brazilian Real weighed on the sugar Index. Hence, the FAO Sugar Price Index fell by 2.31 per cent in May 2017 to a 13-month low.

In Nigeria, according to FSDH Research, “prices of onions, vegetable oil, beans, garri and fish were stable. The movement in the prices of food items during the month resulted in 2.5 per cent increase in our Food and Non-Alcoholic Index to 240.28 points. We also noticed increase in the prices of housing, water, electricity, gas and other fuels divisions between April 2017 and May 2017.”

The domestic price mark ups in food items were coming against significant positive developments in the nation’s foreign exchange market, which was one of the fundamental sources of inflationary pressures in the months before now. With respect to exchange rates, FSDH analysis revealed that: “the value of the Naira appreciated at both the inter-bank and parallel market. The Naira gained 0.15 per cent and 3.66 per cent to close at N305.40/US$ and N382/US$ at both the inter-bank and parallel market at the end of May 2017 respectively.”

The appreciation in the Naira is expected to have countered the effect of the rising prices of food at the international market to certain extent.

This should lead to a moderation in the pass through effect of imported prices on consumer goods in Nigeria.

Consequently, FSDH Research stated: “the general price movements in the consumer goods and services in May 2017 would increase the Composite Consumer Price Index (CCPI) to 230.30 points, representing a month-on month increase of 1.78 per cent. We estimate that the increase in the CCPI in May 2017 would produce an inflation rate of 16.13 per cent lower than the 17.24 per cent recorded in April 2017.”

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Source: http://www.vanguardngr.com/

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