FSDH Expects August Inflation Rate to Increase Further to 17.71%


Thursday, September 08, 2016 4.09pm/ FSDH Research

We expect the August 2016 inflation rate (year-on-year) to increase further to 17.71% from 17.13% recorded in the month of July 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 continued pressure on the value of the Naira. The National Bureau of Statistics (NBS) is expected to release the inflation rate for the month of August 2016 on September 15, 2016 based on the data calendar on its website.

The Food Price Index (FPI) that the Food and Agriculture Organization (FAO) released today September 08, 2016 shows that the FPI increased in August to a 15-month high. The Index was up by 1.95% compared with July, as most commodity prices rose in August led by dairy, oils and sugar.

The value of the Index in August is the highest since May 2015. The FAO Dairy Index appreciated by 8.63% from July as prices of cheese, whole milk powder and butter were on the increase. The increase in price was mainly due to shortage in production in the European Union (EU).

The FAO Vegetable Oil Price Index was up by 7.43% in August, driven by a combination of rising imports demand in some key importing countries notably China, India and the EU, and lower than anticipated palm oil output in Malaysia. The FAO Sugar Index increased by 2.47% in August as a result of a stronger Brazilian currency (Real) against the U.S. Dollar.

The FAO Meat Price Index was up 0.32% as prices for pig and poultry meats increased slightly but were overwhelmed by the decline in bovine meat. On the flip side, the FAO Cereal Price Index declined by 3.02%, mainly due to the significant fall in the prices of wheat, maize and rice.

Our analysis indicates that the value of the Naira appreciated at the inter-bank market by 1.56% while it depreciated at the parallel market by 10.24% in August 2016. The Naira gained N4.92 to close at US$/N316.24 at the inter-bank market while it lost N43 to close at US$420 at the parallel market.

The depreciation recorded in the exchange rate particularly in the parallel market between the two months and higher prices in the international market would put further pressure on domestic prices.

The prices of food items that FSDH Research monitored in August 2016 moved in varied directions. The prices of onions, palm oil, fish, rice and vegetable oil were up by 86.11%, 16.2%, 13.06%, 10.74% and 4.35% while the price of tomatoes, yam, sweet potatoes, Irish potatoes and garri fell by 57.11%, 13.33%, 8.33%, 5.56% and 2.38%.

Meanwhile, the price of beans and meat remained unchanged. The movement in the prices of food items during the month resulted in a 1.10% increase in our Food and Non-Alcoholic Index to 209.33 points. We also noticed increases in Clothing and Footwear; Housing, Water, Electricity, Gas & Other Fuels divisions between July and August 2016.

Our model indicates that the price movements in the consumer goods and services in August 2016 would increase the CCPI to 206.46 points, representing a month-on-month increase of 1.09%. We estimate that the increase in the CCPI in August will produce an inflation rate of 17.71%.

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