Analysts’ projection favours further increase in headline inflation

Ahead of Monday’s scheduled release of Nigeria’s inflation figures for the last month in 2015 by the National Bureau of Statistics (NBS), investment and financial analysts projection for year-on-year (yoy) inflation rate shows an increase to circa 9.50 percent.

Based on the data release calendar available on the NBS website, the Bureau has scheduled to release the inflation figure for December 2015 on January 18, 2016.

Inflation rate increased nine times out of the 12 months in 2015. “Is this rising inflationary trend transient or structural? Though the inflation rate may not be totally transient, a consistent but transient trend becomes self-fulfilling over time,” said the Bismarck Rewane led team of analysts at Financial Derivatives Limited.

The Financial Derivatives analysts who noted that the spectre of high inflation haunts Nigeria, also project a headline inflation of 9.5% for December 2015, marginally higher than the 9.4% recorded in November.

“This will rank Nigeria as the country with the 12th highest inflation rate in Africa. The 0.1% increase estimated in the consumer price index is consistent with the moderate uptick recorded between November and December, in both 2013 and 2014. It will be the highest level since February 2013.

“The major factors contributing towards the rising price level in 2015 are cost-push in nature. These factors include exchange rate pressure, intermittent fuel scarcity, policy uncertainty and trade restrictions.  In December, the naira depreciated significantly in the parallel market to an all-time low of N280/USD, further compounding shortages of imported products. Increased demand due to seasonal festivities resulted in higher food prices”, added the analysts at Financial Derivatives.

Economic Intelligence Group at Access Bank Plc, forecasts inflation rate (year-on-year) to ascend to 9.5% in December from 9.4% recorded in November 2015.

Accordingly, they said their December forecast of 9.5% stems largely from anticipated uptick in the prices of both the food and non-food items in the CPI basket.

“Our methodology adopts an autoregressive analysis of past prices, while it recognises all the assumptions used by the National Bureau of Statistics (NBS) in its computation of monthly composite consumer price index (CCPI). We forecast inflation rate (year-on-year) to ascend to 9.5% from 9.4% reached in November 2015”, the analysts said.

“We expect prices of items such as rice, tomatoes, pepper and meat to weight upon the food index, owing to high demand during the festive period.  The core index should also inch up marginally on the back of pressure on the Naira observed in the month of December. The legal tender depreciated in the parallel market to an all-time low of N280/USD during this period,” said the team of Economic Intelligence at Access Bank Plc.

The analysts said this will have an impact on core inflation given Nigeria’s reliance on imported raw materials, intermediate factor inputs and finished consumer goods; adding that high transportation costs due to scarcity of Premium Motor Spirit (PMS) that spilled over from November is also expected to exert pressure on inflation rate.

In a related view, research analysts at Lagos-based investment house, Dunn Loren Merrifield said they expect a further increase in headline inflation to 9.50 percent.

“Our forecast for December 2015 headline inflation stands at approximately 9.50 percent with our model showing a movement in the food sub-index to 185.9points in December 2015 up from 168.4points in the corresponding period of the previous year. This represents a further rise to 10.40 percent from 10.30 percent recorded in the previous month.

“Also, we forecast an increase in the core sub-index to 176.5points up from 162.5points in December 2014 which would translate to a marginal decline in core inflation to 8.60 percent”, Dunn Loren Merrifield analysts added.

Also, research analysts at FSDH Merchant Bank Limited said “We expect the December 2015 inflation rate (year-on-year) to inch up to 9.42% from 9.37% recorded in November 2015.”

The increase according to the analysts “would be driven by higher Food and Non-Alcoholic Beverages division, and transportation division due to the fuel shortage.”

Iheanyi Nwachukwu