Access Bank EIG forecasts 15.05% inflation rate for January

Currency stability, food, to drive down inflation rate to 15.05% in January – Access Bank EIG

HOPE MOSES-ASHIKE

Ahead of the release of the inflation figure by the National Bureau of Statistics (NBS) today, Access Bank Economic Intelligence Group is predicting a further drift in inflation rate to 15.05 percent in January from 15.37 percent in December.

The downward trend in inflation rate in January reflects a drop in food prices and stability in the currency. The stabilisation 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 January. The local unit remained largely flat in the month, averaging N363.68/$ in January at the parallel market relative to N363.83/$ in December.

In January, prices of food and non-alcoholic beverages, the largest component in the CPI basket (with a weight of 51.8%) nudged lower, supported by ample agricultural supply.

The report revealed that prices for staple food commodities notably fish, grains, garri, tomatoes, and tubers ticked downwards in January.

Consequently, the analysts expect to see continued moderation of fixed income and treasury yields as the inflation rate trends lower. Average 90-day Treasury Bills yields ticked lower to 13.83 percent in January 2018, compared to 14.86 percent in December 2017. The equities market will continue to benefit in a regime of sustained falling yields on money market investments.

Although the naira has stabilised on the parallel exchange rate in recent months, the Central Bank will likely remain wary of cutting rates prematurely for fear of triggering any weakness in the local currency.

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”.

“We expect the inflation rate to average 10.62 percent in 2018 from an average of 16.55 percent in 2017”, Ayodele Akinwunmi, head of research, FSDH Research department said.

Akinwunmi said the factors that will influence the inflation rate in 2018 are the availability of foreign exchange to meet consumption and production purposes, the expected lower interest rate environment in 2018 than in 2017, improved oil production and local substitution strategy and increased local food production.

There has been relative stability in the foreign exchange market following the introduction of the Investors and Exporters forex window in April 2017 by the Central Bank of Nigeria (CBN).

The I&E window has increased liquidity and boosted confidence in the market with over US$28 billion in transactions since its introduction in April 2017.