Inflation Rate to Increase in February 2015


Thursday, March 05, 2015 4:47 PM / FSDHGroup Research


The National Bureau of Statistics (NBS) is expected to release the inflation rate figure for the month of February 2015 on March 17, 2015, based on the Data Release Calendar available on the Bureau’s website as at the time of this report. The latest inflation rate for the month of January 2015 stands at 8.2%, higher than 8.0% recorded in the month of December 2014.


Our inflation rate forecast for the month of January released in our monthly Inflation Watch Report was 8.0%.


According to the NBS, the monthly Composite Consumer Price Index (CCPI) for All Items for the month of January stood at 165.8 points, an increase of 0.8% from December 2014. The CCPI 12-month average for January 2015 stands at 8.1%, up from 8.0% recorded in December 2014.


The NBS noted that the increase in the inflation rate in January 2015 was due to the upward pressure on the Headline Index, which was largely as a result of increasing divisions that contribute to the Core Sub-Index. Prices increased at a faster pace in most of the major non-food divisions such as Housing, Water, Electricity, Gas and Other Fuels; Furnishings & Household Equipment Maintenance; and Clothing and Footwear Divisions. Food prices measured by the Food Sub-Index held at roughly the same pace of increase in January 2015 as in December 2014.

The food prices at the international level, as measured by the Food and Agriculture Organization (FAO) Food Price Index (FFPI) declined in the month of February 2015, compared with January 2015. The Index has been on a declining path since April 2014 and has now reached its lowest value since July 2010. The FFPI averaged 179.4 points, 1.0% lower than the revised value in January and 14% lower than the February 2014 figure. According to the FAO, prices of cereals, meat and especially sugar dipped last month, the price of oils remained stable while the prices of dairy products rebounded sharply.


The FAO Cereal Price Index fell by 3.2% from the previous month, due to the fall in the prices of wheat, coarse grains and rice, with wheat reflecting the highest decline amid already large world inventories. The FAO Sugar Price Index fell by 4.9% from the previous month on the backdrop of improved crop prospects in Brazil. Also, the continued weakening of the Brazilian currency (Real) against the U.S. Dollar has further contributed to the fall in the international sugar quotations.


The FAO Meat Index depreciated by 1.4%. The fall in the Australian currency against the U.S. Dollar and ample supplies caused by exports quotations depressed the prices for beef. On the other hand, the FAO Dairy Index improved by 4.9% in February 2015, representing its first gain since February 2014. A drought-induced fall in milk output in New Zealand, combined with limited export supplies in Australia, is the principal cause for the sudden rise in world dairy prices.

The FAO Vegetable Oil Price Index was up 0.4%, driven by palm oil prices, reflecting recent floods that impaired production in Malaysia and the prospect for a surge of consumption in Indonesia following a hike in domestic biodiesel subsidies. However, the rise in the Index was countered by continuing declines in soy oil prices, amidst prospects of bumper soybean harvests in South America.

Our analysis of the foreign exchange rate of the local currency indicated that the value of the Naira depreciated against the US Dollar by 15.15% from US$/N168 in January to US$/N198 at the end of February due to the closure of the Central Bank of Nigeria Retail/Wholesale Dutch Auction System (rDAS/wDAS) foreign exchange window.


The fall in the international prices of food helped to counter the effect of the depreciation in the Naira. In addition, the local prices have not reflected the effect of the currency depreciation because of delayed effect.


Furthermore, an analysis of the average prices of a basket of consumer goods selected from across the country monitored by the FSDH Research in February 2015 shows that there was a general decrease in the prices of essential food items during the period. Food items such as rice, tomatoes, onions, Irish potatoes, vegetable oil, garri, sweet potatoes and fish recorded decreases of 2.56%, 14.48%, 38.96%, 14.44%, 2.89%, 3.70%, 4.76% and 7.84% respectively.


However, the price of palm oil and meat recorded an increase of 6% and 2.78% respectively. Meanwhile the prices of yam and beans remained unchanged. The movement in the prices of food items during the month resulted in 0.65% increase in our Food and Non-Alcoholic Index to 170.54 points. We also noticed an increase in the prices of Housing, Water, Electricity Gas and other Fuel between January and February 2015.


Our model indicates that the price movements in the consumer goods in February 2015 would increase the Consumer Price Index (CPI) to 166.84 points, representing a month-on-month increase of 0.63%. We estimate that the increase in the CPI in February will produce an inflation rate (year-on-year) of 8.3%, higher than the figure recorded in the month of January.


Looking ahead, the inflation rate for the month of March 2015 is expected to be higher than the February 2015 figure. 

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