Analysts See Moderation in Headline Inflation Rate
Godwin Emefiele,CBN GovernorAnalysts See Moderation in Headline Inflation RateAnalysts have predicted that the inflation rate for July will slow down in July following a three consecutive moderation reported from April to June 2021. The headline inflation rate had jumped for 19 months consecutively before it reversed during the period in April 2021.In a new report issue ahead of inflation figure released by the National Bureau of Statistics (NBS) next week, Meristem Securities see headline inflation rate moderating to 17.57%, representing 18 basis points drop from June reading.For the whole of 2020, Nigeria inflation reading maintained a consistent uptrend due to the galloping food price index following the heightened securities problem.According to the report, a vaccination-driven economic rebound is eventually taking off in advanced economies like the United States where output expanded by 6.50% in Q2:2021 and the unemployment rate pared to 5.40% in July 2021 from 5.90% in June 2021.Similarly, gross domestic product growth in the Eurozone clocked at 13.20% year on year for Q2:2021, with a modest decline in the unemployment rate to 7.70% in June 2021 from 8.0% in May 2021.Meristem said, “While the growth statistics provide some delight for monetary authorities, as it reflects the positive impact of prolonged monetary policy support, consumer prices overshooting their 2% targets remains a major cause of concern”.With July Inflation at 5.40% and 2.20% in the US and Eurozone, respectively, there is an increased possibility of a return to policy normalization earlier than initially expected.On the energy side, the Organisation of Petroleum Exporting Countries and allies (OPEC+) remains committed to gradually easing some of the production cuts affected last year, with plans to increase overall production by 0.4mbpd on a monthly basis, starting from August 2021.“Our view is that this would result in a drop in oil prices in the near term and consequently temper energy-induced inflationary pressures”, analysts noted. It said global food prices have also started to trend downwards.The Food and Agricultural Organization’s (FAO) food price index decelerated for the second consecutive month in July (-1.20%MoM), driven mainly by lower prices of cereals, vegetable oils, and dairy products.Overall, while global commodity prices have started to decline gradually, the risk of demand-pull inflation remains tilted to the upside, as consumer and business confidence continues to ride on the sustained monetary policy support as well as expedited vaccination across developed economies.Nigeria: Headline Inflation Should Moderate AgainIn July, the growth pace of the core index is expected to slow, says Meristem Securities Limited, considering the relative stability of petrel motor spirit (PMS) prices and the exchange rate in the month.For food inflation, though prices of commodities like Yam, Maize, and Rice are still elevated, could see a moderation in the coming months, as harvest season kicks in, analysts added.However, Meristem Securities analysts said the extant insecurity challenges in food-producing regions remain a key downside risk to this outlook.“We acknowledge that the high base from last year has been the overarching driver of the moderating headline inflation in the past few months.“Thus, we expect a slightly lower food inflation of 21.39% year on year from 21.83% in June 2021 and an overall headline inflation of 17.57% in July”, analysts projected.
