Headline inflation drops 11th consecutive month to 15.37% in December
…increasing PMS Price may reverse trend—Analyst.
The Nigerian Bureau of Statistics December 2017 Inflation report released Tuesday, 16th January, showed a moderation in headline inflation to 15.37 per cent year on year (y/y) in December 2017, against 15.90 per cent y/y in November 2017.
According to the report, y/y movement in headline inflation was influenced by the slowdown in the rise in the Food sub index to 19.42 per cent y/y in December 2017, from 20.30 per cent y/y in November, 2017.
Furthermore, the rate of increase in the Food sub-index fell to +0.58 per cent month on month (m/m) in December 2017, from 0.78% m/m in November 2017. This was the slowest increase in the Food sub-index in 2017.
In our opinion, the slowdown in the increase in food prices in December 2017, which occurred against the seasonal increase in food prices, may not be unconnected with already high prices in the market, given that the food sub-index touched an eight year high of 20.32 per cent y/y in September 2017, as well as weak consumer demand.
The rise in prices in the Core sub-index (All items less farm produce) also slowed to 12.10% y/y in December 2017, from 12.20% in November 2017. On a month and month (m/m basis, the Core sub index increased by +0.51% in December 2017, against +0.77% in November, 2017.
Investment One report on the research noted, irrespective of the recorded growth, the on-going scarcity of PMS, which contributed to the 18 per cent m/m increase in the average PMS price paid by consumers in December 2017 about N172/litre, as a potential downside risk to “our outlook, as well as disruptions to activities in the Agriculture sector and election spending”
The report further pointed that December 2017 Inflation report may further confirm expectations for the rise in consumer prices to moderate in 2018, on the back of the high base effect of 2017 as well as the willingness of the administration to curtail any potential increase in energy and food prices given the negative impact it may have on re-election prospects.
“Our view remains that as we see headline inflation moderate towards the CBN’s target .11-12%, we are likely to see the Apex bank move to a more accommodative monetary policy”
On the implication of the NBS report and increasing price of the PMS and its impact on consumer spending and inflation, the investment analysts company noted that there is the potential for further decline in the rate of increase in consumer prices should be a positive for company performances in 2018, which should be a supportive of the equities market.
Furthermore, the report noted the likely reduction in benchmark interest rate and the proposed refinancing of USD2.5billion worth of local debt with offshore borrowings, should see yields in the fixed income space moderate, which should further support the equities market’s performance.
“Also, the potential harmonization between the FG’s expansionary fiscal policy and the CBN’s monetary policy could bode well for the funding of the c.N2trnfiscal deficit at a lower cost. As a result, we could see the nation’s debt service to revenue ratio decline below 45% currently, according to the Minister of Finance”
Stories by Bonny Amadi
