Analysts Target Inflation Easing To 21.34% As Harvest Season Begins

Ahead of the release of the Consumer Price Index (CPI) by the National Bureau of Statistics (NBS) on Friday, analysts at Financial Derivatives Company (FDC) have projected a further tapering in July inflation figures, a development they attributed to the commencement of the harvest season.
According to the analysts, inflation, which measures the rate at which prices of goods and services rise, is expected to moderate to 21.34 per cent from 22.22 per cent recorded in June, as the harvest season is scheduled to begin.
In an emailed note, the analysts said the projected moderation in inflation to 21.34 per cent would be largely underpinned by base-year effects and lower food inflation due to the harvest season,’ pointing to a decline of 0.08 percentage points in month-on-month inflation to 1.60 per cent (annualised at 20.77 per cent).
“With the commencement of the harvest season, we anticipate a further decline in commodity prices in the coming months. During our survey in July, we noticed that the prices of most essential commodities declined – tomatoes by 31.82 per cent, yams by 18.18 per cent, onions by 21.43 per cent, peppers by 11.11 per cent, turkey by 11.76 per cent, palm oil by 4.17 per cent, beans by 3.53 per cent, and garri by 3.03 per cent.
“Meanwhile, 68.57 per cent of items remained stable, including rice, wheat flour, semovita, eggs, Irish potatoes, basmati rice, and vegetable oil. Notably, several import-dependent staples, such as titus fish, basmati rice, and beverages, maintained price stability,” they pointed out.
In July, the exchange rate remained relatively stable across all market segments, supported largely by the Central Bank of Nigeria’s (CBN) interventionist strategy. The value of the naira held around N1,530 in banks at both the official and parallel market windows.
In addition, FDC analysts noted that the retail price of diesel fell marginally by two per cent to N1,050 per litre in July, reducing logistics costs slightly.
“Due to decreased food prices, reduced PMS prices and logistics costs in July, and the stability of the naira in the forex market, we project year-on-year food inflation to ease to 21.35 per cent, representing a 0.62 percentage point decline from June. Similarly, monthly food inflation will fall by 0.57 percentage points to 2.68 per cent from 3.25 per cent.
This is primarily driven by the harvest season, which has led to declining prices in key staples on the back of improved supply.
“Core inflation – which excludes seasonal factors – is expected to soften by 0.35 percentage points to 22.41 per cent. Monthly core inflation is also projected to fall by 0.20 percentage points to 2.26 per cent, from 2.46 per cent, underpinned by improved FX stability and stable energy prices in July,” they stressed.
The FDC analysts, however, pointed to security challenges in food-producing states, as well as falling oil prices, as major risks to the projections. They also noted that, the currency could come under pressure in the coming months, as demand for forex increases for international student tuition fees, coupled with inventory restocking by traders ahead of Christmas.