Access Bank’s Economic Intelligence Unit said it February inflation to fall to 18.1% compared to 18.7% reached in January 2017.
The forecast is timely preview to official data billed to be released by the National Bureau of Statistics (NBS) on March 15, 2017, based on the Data Release Calendar available on the Bureau’s website.
In email statement issued by the Economic Intelligence Group, bank said the February’s data will be the first inflation rate decline to be witnessed in fifteen (15) months. As usual, our methodology adopts an autoregressive analysis of past prices, while it recognizes all the assumptions used by the National Bureau of Statistics (NBS) in its computation of monthly composite consumer price index (CCPI).
Inflation Forecast Drivers
The expected dip in the year-on-year inflation reading will be largely driven by base effects. Base effects refers to the influence of the consumer price changes of the corresponding month of the previous year on the changes in the annual inflation of the current year’s respective month.
From our investigation, there was an increase of 3.8 points in the consumer price index (CPI) to 219.5 points in February 2017 from January, a slower increase compared to the rise in the corresponding period of 2016 when the CPI rose by 4.19 points to 185.89 points in February 2016 from the January 2016 number. Largely, the slow rate of change forecasted for February 2017 is due to the higher CPI base witnessed in 2016. Recall, there was an FX depreciation of about 11.7% at the unofficial market in February 2016. The pass-through effect of this depreciation impacted market prices and consequently CPI.
The base effect-led decline in inflation rate is expected to mask the moderate price increases of goods and services during the review period.
The core-sub index which has declined for two consecutive months is also expected to continue on its downward trajectory as prices under groups such as communication, restaurants and hotels are expected to remain muted or ease marginally.
Probable Market Impact Points
Money and Fixed Income Market:
Given that yields may likely drop as inflation is expected to track lower and following the recent government policy barring investors with fifty (50) million naira and below from investing in treasury bills, retail investors may likely migrate to the newly launched government savings bonds and money market instruments.
Lower inflation rate will have a positive impact on real rate of return, as the real rate inches closer to cross over from the negative territory to a positive terrain.
Monetary Policy Responses:
The moderation in rising inflation rate after fifteen (15) consecutive months may encourage the monetary authority to re-evaluate its stance as regards the benchmark interest rate. Therefore, the financial watchdog may adopt an accommodative position at their upcoming Monetary Policy Committee (MPC) meeting later this month.
Should the bank’s prediction play out, it will mean Nigeria’s recession is losing steam. It will also indicate that gains recorded by Naira is reducing pressure on imported goods which led to massive inflation after the currency was devalued last year.
