May 2017 Inflation Rate to Drop on Base Effect - FSDH


Thursday, June 8, 2017 5:59 PM /FSDH Research

We expect the May 2017 inflation rate (year-on-year) to drop to 16.13% from 17.24% recorded in the month of April 2017.

The drop is expected to come mainly as a result of 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 persists in Nigeria. Based on the data release calendar on the National Bureau of Statistics (NBS) website, we expect the NBS to release the inflation rate for the month of May 2017 on June 15, 2017.

The monthly Food Price Index (FPI) that the Food and Agriculture Organization (FAO) released today shows that the Index rebounded in May 2017 following three months of consecutive decline.

The Index averaged 172.6 points, 2.19% higher than the revised value for April 2017, as all the sub-indices increased except sugar. The FAO Dairy Price Index increased by 5.15% in May, as prices for all categories of dairy products were on the increase.

The FAO Vegetable Oil Price Index was up by 4.74%, primarily driven by increase in both palm and soy oil prices occasioned by the rising global imports demand, low inventories and robust consumption particularly in the United States.

The prices of meat have continued to trend upward since the beginning of the year 2017. The FAO Meat Price Index was up 1.47% as prices for pig, bovine and ovine meat all increased, while those of poultry meat were stable.

The FAO Cereal Price Index was up by 1.40%, largely on account of the increase in the prices of wheat and rice.

Meanwhile, the price of maize was modest due to large global supply. On the flip side, the continued fall in the price of sugar 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% in May 2017 to a 13-month low. Our analysis indicates that the value of the Naira appreciated at both the inter-bank and parallel market. 

The Naira gained 0.15% and 3.66% 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. The prices of most of the food items that FSDH Research monitored in May 2017 increased substantially.  

The prices of tomatoes, Irish potatoes, yam, meat, rice and sweet potatoes were up by 88.16%, 36.8%, 32.42%, 4.76%, 2.54% and 0.6% respectively. Meanwhile, the 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% increase in our Food and NonAlcoholic Index to 240.28 points. We also noticed increase in the prices of Housing, Water, Electricity, Gas & Other Fuels divisions between April 2017 and May 2017.  

Our model indicates that 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-onmonth increase of 1.78%.  

We estimate that the increase in the CCPI in May 2017 would produce an inflation rate of 16.13% lower than the 17.24% recorded in April 2017. 

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