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Economic Outlook: Inflation Forecast for December 2013

Category: Nigeria Economy

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Economic Outlook: Inflation Forecast for December 2013

Friday, January 10, 2014 / DLM Research

Background to our forecast. The headline inflation for December 2013 is expected to be released by the National Bureau of Statistics in the week ahead. We state that inflationary threats remained largely subdued in 2013 in view of the significant decline of 410bps from 12.00% in December 2012 to 7.90% as at November 2013 (fig. 1). The uptick in headline inflation recorded in November 2013 from the 7.80% recorded in the previous month was particularly attributed to the increases recorded in eleven of the twelve Classification of Individual Consumption According to Purpose (COICOP) Divisions which cuts across both food and core sub-indices.

We estimate a marginal increase in headline inflation to 7.95% y/y. Our estimate is based on seasonal trends for months January through to December, which we believe to a large extent explains the expected inflation level for December. The food CPI constitutes a large proportion of the CPI Basket and seasonal patterns may vary based on harvest levels per crop. Our other estimate follows seasonal trending over a six-month period, which has shown significance over time. Our forecast for December stands at c.7.95%, representing an increase of 5bps from the 7.90% recorded in the previous month.

We also forecast a y/y marginal decrease in food inflation even as core inflation is likely to remain flat y/y. Our model shows a movement in the food sub-index captured by “farm produce and processed foods” to 153.9points in December 2013 up from 152.8points in the previous month. This resulted in a y/y food inflation of c.9.00%, 30bps lower than the 9.30% recorded in November 2013. Also, we forecast an increase in the core sub-index to 152.8points in December, up from 151.9points in November which translates to a core inflation of c.7.80% y/y. Overall, we forecast that core inflation would likely remain unchanged from November on a y/y basis.

Following the trend of lead inventory as our food price index model suggests, the palm oil index had fallen from a 3month average of 121.62 points to 94.17points y/y, while wheat also marked a significant y/y decline from 166.45points to 128.47points; rice marked an insignificant change from 102.03points to 103.29points.

Possible impact on upcoming MPC meeting. Ahead of the January 2014 meeting of the MPC, we are of the view that rates will be held at current levels. In addition, as the country goes into an election year, we do not anticipate any policy reversal given the increased inflationary concerns in 2014.

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While the website is checked for accuracy, we are not liable for any incorrect information included. The details of this publication should not be construed as an investment advice by the author/analyst or the publishers/Proshare. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All opinions on this page/site constitute the authors best estimate judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions. This article is published with the consent of Dunn Loren Merrifield, the author(s) for circulation to the online investment community in accordance with the terms of usage. Further enquiries should be directed to the author whose e-mail is Dunn Loren Merrifield Limited [] otherwise comments should be sent to


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