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Inflation dips below 8% mark… first since March 2008

Category: Nigerian Economy


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Inflation dips below 8% mark… first since March 2008

Thursday, November 14, 2013 / Edward Kingston

National Inflation Performance: Headline Inflation, the measure of aggregate consumer prices in the economy, slowed for a third consecutive month, to 7.8% year-on-year in October 2013, 20 basis points lower than 8.0% in September and lowest since March 2008. In similar fashion, the index of Food prices dropped year-on-year to 9.2% from 9.4% in September. The prices of non-farm produce items, or Core Inflation, rose to 7.6% in October when compared to the same month last year. It had recorded 7.4% when measured on the same basis in September.

Month-on-month, all three principal measures of inflation remained virtually the same in October as in September. Headline Inflation recorded 0.7%* in October, as in September, representing a sharp change in the pace of adjustment in month-on-month inflation, given that it jumped 40 basis points between August and September. Food prices recorded a month-on-month increase of 0.8% in October. Officially, this represents a 10 basis points decrease from September (the conflicts with our in-house calculations based on NBS data, which show m-o-m Food inflation also at 0.8% in September). The change observed in the index of non-farm produce equally remained at 0.6% in October as in September.

The National Bureau of Statistics indicates that continued moderation in the rate of increases in food prices, as a consequence of on-going harvest season, significantly contributed to the overall moderation of inflation in October. The Bureau also reported that there was a dampening effect from reduced back-to-school spending with the school year well underway, and from moderation in the utilities sub-index.

Inflation in the States: More States recorded inflation faster than the national average in September. Prices rose faster than the national figure in 19 states, down from 22 in September. Headline Inflation was lower than the national rate of 7.8% in 18 States (including the FCT). This compares with 15 States in September 2013. According to the NBS, States’ inflation data are not suitable for inter-state comparison, owing to structural differences in the prices basket of the various States. It is worthy of mention, however, that 13 States recorded double-digit inflation rates whilst 24 States recorded single-digit rates in October.

Rural/Urban Divide: Prices in Urban Areas rose 7.9% year-on-year in October, slower than 8.0% recorded in September. Similarly, in Rural Areas, the rate of increases in prices receded when compared to the previous month, dropping from 8.0% in September to 7.8% in October. These changes snapped the historic convergence of the Urban inflation rate with the Rural inflation rate in the previous month with the margin between both rates now 0.1 percentage points.

IMPLICATIONS OF INFLATION DATA

a. Policy

The MPC would be pleased with the continued moderation in overall inflation and with the strength of the Naira in recent weeks. We suspect that the CBN’s outlook for single-digit inflation next year is not unhinged from its anticipation of keeping the policy rate and other policy instruments tight onwards, at least through to the end H1 2014. Retention of the status quo, which we expect at next week’s meeting, is currently the apex bank’s most effective tool for managing probable resurgence in exchange rate pressure in coming weeks.

b. Fixed Income Markets

Moderation in bond yields continued from October into November, although the pace of moderation has not been sharp. It might be that investors are encouraged by what lower inflation means for inflation-adjusted yields, and are beginning to break the dissonance between bond yields and inflation expectations that we observed earlier in the year. This would make the inflation outlook for next year critical to the bonds market as would liquidity conditions.

c. Equities Markets

Inflation-adjusted ASI returns on the Nigerian Stock Exchange increased to 26.8% at the end of October, from 23.8% at the end of September as the equities market continued to rally after rebounding from a slump in August. Investor returns still are and should remain comfortably above inflation and this would be sustained for the rest of 2013.

INFLATION OUTLOOK  

At 7.8%*, the actual figures for October exceeded our forecast of 7.7% and moved downwards in line with our prediction. We expect inflation in November to remain at 7.8%, as the marginal increase in ‘base effects’ from November 2012 in comparison to October 2012 would be neutralized by the impact on inflation from the exchange rate, pressure on which might intensify as the festive season approaches.

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This document is issued by Edward Kingston Associates for information purposes only. It does not constitute any offer, recommendation or solicitation to any person tenter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movements in rates or prices. EdwardKingston Associates accepts no liability for any loss incurred by any person acting in reliance on this document.



Tags: Inflation,  National Inflation,  Headline Inflation,  economy,  Core Inflation,  National Bureau of Statistics,  FCT,  Rural Areas,  Urban Areas,  Urban inflation,  CBN, 



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