Inflation Rate to Drop Marginally to 15.4% - FSDH

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Friday, July 08, 2016/ 3.32pm / FSDH Research

We expect the June 2016 inflation rate (year-on-year) to drop marginally to 15.39% from 15.58% recorded in the month of May 2016. We expect the marginal drop to come from decrease in the prices of tomatoes, beans and rice. The National Bureau of Statistics (NBS) would release the inflation rate for the month of June 2016 on July 16, 2016 based on the data calendar on its website.

The Food Price Index (FPI) that the Food and Agriculture Organization (FAO) released on Thursday July 07, 2016 shows that the FPI increased for the fifth consecutive month. The Index was up in June by 4.22%, compared with the revised value in May as all the sub-indices increased except for vegetable oil index.

The increase in the FPI also represented the highest month-on-month increase over the last four years. The Sugar Price Index increased by 14.81% in June 2016 and the highest level since November 2012. The increase mirrored deteriorating crop production prospects in Brazil.

The FAO Dairy Price Index was up by 7.77% as shaky supply outlook caused prices to increase. The FAO Cereal Price Index was up by 2.87%, largely on account of the sharp increase in the price of maize.

The FAO Meat Price Index was up 2.43% as prices for all categories of meat were on the increase. On the flip side, the FAO Vegetable Oil Price Index fell by 0.76% due to subdued global import demand for palm oil, combined with seasonal recovery in production in Malaysia and Indonesia.

Our analysis indicates that the value of the Naira depreciated at the inter-bank market and the parallel market by 29.64% and 0.28%. The Naira lost N83.87 at the inter-bank market to close at US$/N282.97 from US$/N199.10 at the end of June. The implementation of the flexible foreign exchange policy was responsible for the huge loss in the value of the Naira at the inter-bank market.

We believe the depreciation in the inter-bank foreign exchange rate did not translate to an increase in domestic prices because most transactions were earlier carried out at parallel market exchange rate.

The prices of food items that FSDH Research monitored in June 2016 dropped on the average compared with May 2016. The prices of tomatoes, Irish potatoes, rice and beans were down by 38.41%, 4%, 3.33% and 2.56%, while the prices of Irish potatoes, onions, vegetable oil, palm oil, fish and yam increased by 8.33%, 6.67%, 5.56% 5.56%, 1.96% and 0.46%.

Meanwhile, the prices of garri and meat remained unchanged. The movement in the prices of food items during the month resulted in a 0.79% increase in our Food and Non-Alcoholic Index to 203.32 points. We also noticed increases in Clothing and Footwear; Housing, Water, Electricity, Gas & Other Fuels divisions between May and June 2016.

Our model indicates that the price movements in the consumer goods and services in June 2016 would increase the CCPI to 199.82 points, representing a month-on-month increase of 0.76%.

We estimate that the increase in the CCPI in June will produce an inflation rate of 15.39%.





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