Access Bank Economic Intelligence Group Forecasts 15.94% Inflation Rate for July 2017


Friday, August 18, 2017 10:40AM / Access Bank Economic Intelligence Unit 

The National Bureau of Statistics (NBS) is scheduled to release the inflation figure for July 2017 on August 16, 2017 based on the Data Release Calendar available on the Bureau’s website.

The Economic Intelligence Group forecasts inflation rate (year-on-year) to trend downwards to 15.94% in July 2017 from 16.10% posted in June 2017.  This would be the sixth consecutive month that the pace of annual inflation will slow after reaching a peak of 18.72% in January.

Our methodology adopts an autoregressive analysis of past prices while it recognizes all the assumptions used by the National Bureau of Statistics (NBS) in its computation of monthly composite consumer price index (CCPI). 

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Inflation Forecast Drivers  
Looking in more detail at the drivers, the moderation in the inflation rate in July comes as rising prices for food items were partially offset by a drop in core inflation.  In July, prices of food and non-alcoholic beverages, the largest component in the consumption basket (with a weight of 51.8%) rose slightly. According to an independent survey, prices of main staple food commodities such as Beans and Yam ticked slightly upwards. 

According to the NBS, the Food Index increased by 19.91% year-on-year (y-o-y) in June, 0.64 per cent points higher than the rate recorded in May (19.27%). Core inflation, which excludes the prices of volatile agricultural produce, extended its downward trend in July. 

This is partially attributable to increased FX availability and the appreciation of the naira on the parallel market.  The value of the Naira remained stable at the interbank market while it appreciated at the parallel market by 0.54% to close at $/N365.00 from $/N367 at the end of June. 

The core inflation for the month of June stood at 12.5%, 0.5 per cent lower than the 13% recorded in May 2017 and the 7th consecutive monthly decline in the core index since December 2016. 

Probable Market Impact Points

Money and Fixed Income Market  
Given the deceleration in the inflation rate, relative exchange rate stability, and the prospect for further primary debt issuance, the demand for longer-dated paper should increase. 

Monetary Policy Responses 
Considering that inflation is still far above the Central Bank’s target range (6- 9% y-o-y), the apex bank is likely to take a cautious approach in any move towards a more accommodative monetary policy. 

Hence, we expect the benchmark policy rate to remain at the prevailing level of 14%.

With no change in the monetary policy rate anticipated, we expect FX stability to remain the primary aim of CBN monetary policy, prompting it to maintain open-market operations, pre-funded FX auctions to mop up excess liquidity, and issuance of stabilization securities to deal with maturing debt instruments.

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