Ahead of the scheduled release of inflation figure for July 2018 on August 15, 2018 by National Bureau of Statistics (NBS), the Economic Intelligence Unit Group of Access Bank has forecast that July inflation rate (year-on-year) will trend downwards to 10.97 percent, compared to 11.23 percent recorded in June 2018.
The bank group of analysts said their 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).
“Looking in more detail at the drivers, our analysis indicates that the downward trend in inflation rate in July was largely due to fairly stable food prices, as the increase in some food items was offset by decreases in the cost of others, and stability in the currency,” they contended, adding that in July, prices of food and non-alcoholic beverages, the largest component in the CPI basket (with a weight of 51.8%) moved in mixed directions.
The said that, according to their survey, prices for staple food commodities, notably green pepper, tomatoes and tubers rose, reflecting lower supplies during the planting season, which lasts from mid-February to end of August, adding that processed foods, mainly beverages, nudged slightly lower, enjoying support from stable transport prices and wholesaler discounts aimed at liquidating excess inventory.
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“The stabilization of the naira (on both the official and the parallel rates) amid consistent CBN USD supply in its auctions kept the core index subdued in July. The local unit gained 0.55 percent to close at N360/$ at the parallel market at the end of July 2018 compared to N362/$ at the end of June. Some of the items in the core index basket that benefited from the stability in the exchange rate include; fuel and lubricants for personal transport, books and stationeries, and vehicle spare parts.”
Their outlook on money and fixed income market indicates that Treasury bill yields are likely to contract further, as market players react to declining inflation.
The yields on the 3- and 6-month treasury bills settled at 10.92 percent and 12.69 percent respectively on July 31st, compared with 12.76 percent and 13.07 percent in that order on June 29th.
On monetary policy response to the declining inflation rates, they said they expect the CBN to adopt a relatively cautious stance when it comes to making cuts to avoid triggering weakness in the local currency and also to manage the expected boost in government spending from the 2018 budget.
“With no change in the benchmark rate anticipated, we expect the CBN to continue issuance of OMO and stabilisation securities with focus on curbing naira liquidity to reduce speculative USD demand.”