Hope rises for capital market as inflation drops to 17.26%

Fresh hope is rearing for the Nigerian capital market as headline inflation sustains its descent from a height of 17.8 per cent in February 2017.

Cross section of capital market experts told Daily Times Nigeria that reduced inflation, or stagflation reflects increasing economic activity, increased spending which impacts the capital market and listed companies positively.

The experts pointed that decline in inflation should be supported by appropriate forex policy that supports long term investment decisions, as this would further buoyed investments and capital market vibrancy.

Meanwhile, according to recent data released by the Nigeria Bureau of Statistics, March 2017 recorded further decline in headline Consumer Price Index (CPI), second consecutive month as Y-o-Y headline inflation drops to 17.26 per cent in Mar 2017 from 17.78 per cent in Feb 2017.

This decline was driven largely by continued benefit from higher base effect of 2016 headline inflation and slower y/y pace of increase in both Food and Core index.

According to the report, food index diminished slightly in March. The Food index increased by 18.44 per cent , 9 points lower than 18.53 per cent increase in February on year on year basis.

The slower pace of increase in Food index, the report showed, mirrored decline in categories such as soft drink, coffee, as well as tea/cocoa which however, offset the faster increase in cereal, milk, meat, bread among others.

Core inflation performance index also performed better, increased milder by 15.4 per cent in March as against 16.0 per cent increase in February reflecting the benefit of higher base effect in corresponding period of 2016.

However, on month to month basis, inflation leaps higher: the m/m inflation reading in March was up by 1.72 per cent. It rose by 23bps compared to 1.49 per cent jump in February.

This development analysts attributed to the persisting m/m upward pressure on both food and core index which rose 2.21 per cent and 1.32 per cent m-o-m in March compared to 1.99 per cent and 1.10 per cent m-o-m respectively in February.

FBNQuest analysts in its remark on the decelerating inflationary trend noted that, going forward, its is reiterating expectation for continuous deceleration in inflationary pressure on higher base effect of 2016 and pass-through effect of recent appreciation in Naira value on imported inflation.

The report however noted “Having said that, given the continuous uptick in m-o-m inflationary trend, the expected switch in monetary policy stance to an accommodative mood may be impaired, as the monetary authority would want to keep system liquidity tight in defense of the local currency.

The report noted that, while decline in inflation should be supportive of expected downtrend in yields on FI instruments, “we are of the opinion that persistently high m-o-m inflationary trend may limit the potential for significant southward trend in yields in the near term”