If this forecast is accurate, it will bring to an end the 18-month consistent decline in the index. This inflection is not surprising as the rate of moderation in the price level had been noticeable over time.
The analysts based their assumptions on the continued Apapa gridlock is seen increasing inventory carrying costs and demurrage as well as the confluence of the Eid-Al-Fitr and 3-day closure of the 3rd mainland bridge that triggered a hike in transport fares.
The FDC analysts however noted that month-on-month (m-o-m) inflation, which is more reflective of seasonalities, is expected to decline to 0.98 percent (12.36% annualized).
“Typically, the third quarter is the harvest period, which is a season of higher agriculture output. Food commodities such as tomatoes, pepper and yam tubers recorded a significant decline in their prices. The usual increase in food prices during the Eid-Al-Fitr celebrations was moderated by higher agriculture output, with the price of onions being the outlier.”
To them, the prices would have gone higher if not for the moderating factors of increased power output, falling prices of diesel and improved PMI.
“Average on-grid power output increased by 1.32 percent to 3,660MWh/h. This is expected to have a positive impact on aggregate output and also reduce the demand for alternative source of energy such as diesel.
“The average wholesale (depot) price of diesel fell by 0.97 percent to N205/liter in August. This reflects a reduction in logistics costs, which could drive down the operating expenses of firms,” they said, adding that PMI is now out of a contraction, following 12.07 percent increase in August, which suggests an increased level of activities.
“The improvement in Nielsen’s consumer confidence index to 122 from 113 implies higher willingness of consumers to spend,” they highlighted.
They predict that the reversal in inflation trend have huge impact on the September 24-25 MPC meeting
“The weak Q2 GDP growth rate (1.5%), coupled with the possibility of a reversal in the inflation trend would be major considerations at the next MPC meeting on September 24/25. This would make for an interesting and equally acrimonious meeting,” the said.
Frontpage November 25, 2019