Analysts at the Financial Derivatives Company (FDC) in Lagos State, Nigeria’s commercial capital, are upbeat that the Consumer Price Index otherwise known as the inflation rate for August 2024 will decline due to the effects of the harvest season. In July 2024, headline inflation in Africa’s most populous nation fell to 33.40 percent, down from 34.19 percent in June. For the August 2024 inflation rate which will be announced today, FDC is betting that the headline inflation rate will decline to 32.46 percent, based on their in-house projection.
“The projection from our econometric model estimation suggests there will be a further decline in headline inflation to 32.46% from 33.40% in August. The falling inflation is reflective of some aberrational activities that took place in August including #Endbadgovernance protests, fuel scarcity, and the Naira depreciation,” FDC said.
The projection of a fall in inflation rate is despite the recent changes in some major economic variables which usually influence upward movement in inflation rate. It should be noted that recently, the pump price of the premium motor spirit increased from an average of N600 per litre to N900 per litre. This is as the naira experienced some depreciation at the forex market, adding that some analysts are of the view that the downward trend may not be sustainable.
“A few skeptical analysts were of the view that the declining trend of inflation may not be sustainable due to the counter-effect of the new PMS pump price at N900/litre,” FDC added.
Separating the different inflation rates in the country, FDC said that the core inflation is expected to maintain its upward movement, projecting it to hit 27.62 percent in August, up from 27.47 percent in July.
On the other hand, food inflation is projected to decline to 39.53 percent, from 40.9 percent in July 2024. The investment cum research firm said that core inflation is more structural than transient while food inflation responds to harvest and seasonalities. It further stated that commodities that the volatile exchange rates have significant effect over their prices including chicken, turkey, milk, rice, among others are still out of reach due to the passthrough effect.
“The prices of domestically produced staples like yam (31.25%), sweet potatoes (33.3%), Irish potatoes (11%), basket of tomatoes (50%), palm oil (16.6%), and plantain (37.6%) declined, attributed to the harvest season. However, its price-moderating impact in July-August was largely limited by the recent 50% increase in the PMS pump price, from N600/litre to N900/litre.
“The cost of logistics and distribution cost has amplified supply shortages creating market disequilibrium. The resulting impact of this is a spike in the prices of commodities, especially food. For example, the price of a 50kg bag of rice increased by almost 5% to N88,00 in September from N84,000 in August,” FDC stated.
In its July projection, NESG predicted that inflation rates for the remaining months of 2024 could fall provided the current challenges such as insecurity are addressed.
“Looking ahead, the headline inflation rate is expected to remain elevated with a likely slowdown in the near term due to the base effect, the discontinuation of the Central Bank of Nigeria’s Price Verification system and the 150-day suspension of import duties on staple foods. However, the upside risks will likely prevail if infrastructural deficits, insecurity, low agricultural production, high input costs and rising energy costs are not proactively addressed,” NESG said.
