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Home Economics

Inflation Rate Decline To Continue – Economic Analysts

Rate Captain by Rate Captain
October 22, 2021
in Economics, Markets
Reading Time: 3 mins read
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As headline inflation moderates for the 6th consecutive month to 16.63 per cent in the month of September this year, analysts have predicted a sustained reduction in the month of October following the Central Bank of Nigeria, CBN’s effort to tackle the demand pressure on Foreign Exchange, forex.

Analysts at United Capital Group in its report tagged “Inflation flash” released yesterday stated: “On core inflation, we expect to see a mixed bag of FX impact as the recent FX pressures in the parallel market would remain a concern for imported commodities that have been banned from accessing FX from the official channels. On the flipside, we expect FX liquidity via official channels to improve, providing succour for importers of items regarded as legitimate by the Central Bank of Nigeria, CBN. In addition, we do not expect the risks of higher energy cost to crystallise in the near term as FG continues to maintain subsidies on petrol and electricity tariffs.

“Also, we note the high base effect on inflation is expected to become more pronounced in the final quarter of the year, adequate to absorb any pressure that could result from FX scarcity. For October 2021, we forecast Month-on-Month, M-o-M, headline inflation will print at 1.20 per cent, five bases points, bps, higher than September’s 1.15 per cent while annual headline inflation will drift lower by 39bps to 16.25 per cent.

“Given we expect sustained disinflation, we believe this further dent the case for tighter monetary policy in subsequent MPC (Monetary Policy Committee) meetings. This reduces upside risk for the yield environment, although we note huge funding pressures for the Federal Government (FG) may keep the yield environment moderately biased upwards.

While looking ahead, the analysts said: “While price pressures still abound in the economy, our prognosis remains that disinflation will persist in the immediate term. First, for food inflation, we expect some reduced pressure on locally produced food items in the near-term as the supply chain continues to be debottlenecked while the harvest season gets into full swing for the rest of year. Nevertheless, we expect harvest quantities to be limited (due to reduced farming activities during the recent planting season), implying there could be worse food price pressures to come during the 2022 planting season.”

In their own forecast report, analysts at CardinalStone Research stated that: “We project a further moderation in headline inflation to 16.34 per cent Year-on-Year, YoY, in October 2021 on the sustained impact of the base effect. However, the potential commencement of main harvest in some parts of the country, particularly in the North, is unlikely to materially tame MoM inflationary pressure. This view is premised on the already highlighted currency impasse, energy-related concerns, and possible festive-induced demand pressures in the coming months.”

Meanwhile, in its reaction on inflation, Dr Muda Yusuf, immediate past Director General, Lagos Chamber of Commerce and Industry, LCCI, and CEO, Centre for the Promotion of Private Enterprise, CPPE, said: ” The steady but marginal deceleration in headline inflation over the past few months is noteworthy. However, inflationary pressures remain a key concern in the Nigerian economy, both for businesses and the citizens.”

On the implications, he said: “Although the economy witnessed an incremental deceleration in inflation over the last couple of months, high inflationary pressures remain a major concern to stakeholders in the Nigeria economy. Some of the implications are as follows: Escalation of production and operating costs for businesses, leading to erosion of profit margins, drop in sales, decline in turnover and weak manufacturing capacity utilization, high food prices which impacts adversely on citizens welfare and aggravates poverty, weak purchasing power which poses significant risk to business sustainability and price volatility which undermines investors confidence.”

 

 

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News Source: Vanguard

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