Friday, August 05 2016 10:58AM /FSDH Research
We expect the July 2016 inflation rate (year-on-year) to increase to 17.35% from 16.48% recorded in the month of June 2016. We expect the increase to come from the increase in the prices of food items and other non-food items as a result of the depreciation in the value of the Naira. The National Bureau of Statistics (NBS) is expected to release the inflation rate for the month of July 2016 on August 18, 2016 based on the data calendar on its website.
The Food Price Index (FPI) that the Food and Agriculture Organization (FAO) released today August 04, 2016 shows that the FPI declined in July, following five consecutive months of increase. The Index was down in July by 0.83% compared with June, as the decline in prices for grains and vegetable oil weighed down the Index. The FAO Cereal Price Index declined by 5.59%, mainly due to the significant fall in the price of maize and wheat.
The Vegetable Oil Price Index was down by 2.81% in July, driven by a continuation of the slide in the prices of palm oil, soy, sunflower and rapeseed oil. On the flip side, the FAO Dairy Index appreciated by 3.51% from June due to renewed import demand. The FAO Meat Price Index was up 1.26% as prices for all categories of meat were on the increase.
International demand for meat firmed up, supported by the limited availability of some meat categories in July. The FAO Sugar Index increased marginally by 0.98% in July as a result of a stronger Brazilian currency (Real) against the U.S. Dollar.
Our analysis indicates that the value of the Naira depreciated at the inter-bank market and the parallel market by 11.89% and 6.63% respectively in July 2016. The Naira lost N38.19 and N25.00 at the inter-bank and parallel market to close at US$/N321.16 and US$377 respectively as at the end of July. The depreciation recorded in the exchange rate between the two months would put further pressure on domestic prices.
The prices of food items that FSDH Research monitored in July 2016 increased compared with June 2016. The prices of yam, onions, sweet potatoes, palm oil, vegetable oil, garri, Irish potatoes, rice and fish were up by 28.7%, 17.78%, 10%, 8.89%, 7.94%, 5.56%, 4.55%, 3.7% and 1.85%, while the price of tomatoes, fell by 27.34%. Meanwhile, the price of beans remained unchanged.
The movement in the prices of food items during the month resulted in a 1.50% increase in our Food and Non-Alcoholic Index to 207.66 points. We also noticed increases in Clothing and Footwear; Housing, Water, Electricity, Gas & Other Fuels divisions between June and July 2016.
Our model indicates that the price movements in the consumer goods and services in July 2016 would increase the CCPI to 204.61 points, representing a month-on-month increase of 1.45%. We estimate that the increase in the CCPI in July will produce an inflation rate of 17.35%.