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Headline inflation rate drops in June

By Elizabeth Adegbesan

Despite the decline in headline inflation rate to 11.2 percent in June 2019, analysts in the financial sector of the economy have projected that the headline inflation index will rise to 11.5 percent in the second half of 2019, H2’19.

The National Bureau of Statistics, NBS, reporting for the month of June, 2019, said yesterday that headline inflation rate dropped by 0.18 percentage points to 11.2 percent in June from 11.4 percent in May 2019.

Similarly, the Bureau noted that Year-on-Year, YoY, food inflation rate dropped by 0.23 basis points to 11.56 percent in June from 11.8 percent in May.

The report stated: “The consumer price index, (CPI) which measures inflation, increased by 11.22 percent (year-on-year) in June 2019. This is 0.18 percent points lower than the rate recorded in May 2019 (11.4 percent). Increases were recorded in all COICOP (Classification of Individual Consumption by Purpose) divisions that yielded the headline index.”

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On food inflation, it stated: “The composite food index stood at 13.56 percent in June 2019 compared to 13.79 percent in May 2019. The decline in the food index was caused by increases in prices of Bread and cereals, Meat, Oils and fats, Potatoes, yam and other tubers, Fish, Vegetables and fruits.

“In June 2019, food inflation on a YoY basis was highest in Kaduna (17.50 percent), Kebbi (16.96 percent) and Ondo (16.44 percent ), while Abia (10.84 percent), Bayelsa (9.97 percent) and Kogi (9.81 percent) recorded the slowest rise.

On month on month basis however, June 2019 food inflation was highest in Kogi (3.20 percent),River (2.96 percent) and Osun (2.58 percent), while Anambra (0.47 percent) , Yobe (0.33 percent) and Kaduna (0.26 percent) recorded the slowest rise.

Analysts comments

Analysts at Cowry Asset Management Limited, a Lagos based investment house, said:  “We expect inflation rate to rise in the coming months amid Central Bank of Nigeria’s recent policies to stimulate economic growth and possible aggressive implementation of minimum wage”.

Also commenting on the development, analysts at United Capital Plc said: “Looking into the rest of the year, we estimate headline inflation to be sticky between 11.0 percent and 11.5 percent, averaging 11.4 percent, which will be 80 basis points below the average inflation rate in 2018.

“Notably, the trend shows that month-on-month, MoM, inflation rate is likely to moderate in H2’19 as observed over the last five years, majorly due to seasonality which often drives cyclical movement in food prices, while a stable currency market environment will keep core inflation lower.

“Accordingly, MoM inflation may average 0.90 percent in H2’19 (compared to 0.93 percent in H1’19). Under this scenario, we expect the headline inflation rate to settle at 11.5 percent by December 2019.

“However, there are structural issues that may sway this outlook in the opposite direction. Some of these include the sustained fiscal dominance which has kept the cost of capital high, thereby constraining credit to the private sector. Also, the increase in the minimum wage, depending on the aggressiveness of implementation, may be inflationary if the pace of output growth remains low. Finally, an adjustment in energy prices may mount fresh pressure on prices.”

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