Culled—Proshare

November 14, 2016/FDC

The Headline inflation rate (YoY) increased to 18.3% in the month of October, 0.4% higher than September’s rate of 17.9%. This rate is approximately equal to and within the margin of error of the FDC forecast of 18.2%. The increase in the headline rate marks the 9th consecutive month of consumer price increase.

Month-on-month inflation increased to 0.83%, the first increase since June 2016. If annualized, the monthly rate is 10.43%. This increase is likely to sway the doves in the MPC away from the argument for a more accommodative stance. The question however, is whether this rise in the monthly inflation is a blip or a point of inflection.

NBS October Consumer Price Breakdown
Increases were recorded both in the food and non-food baskets. The food index rose to 17.1%, 0.47% higher than 16.6% in September. All items in the food basket increased with bread and cereals, fish and meat recording the highest increases. Food items are exchange rate sensitive therefore forex scarcity in the market trickled into the prices of these items.

The core sub-index rose by 0.4% to 18.1% in October. As with the food basket, price increases were recorded across all items in this basket. The items with the highest increases include housing, water, electricity, gas and other fuels, fuels and lubricants for personal transport equipment and education. Rural and urban inflation also recorded increases, with the rural and urban indexes rising to 16.9% and 19.9% in October from 16.4% and 19.5% respectively in September.

Inflation across Sub-Saharan Africa
Nigeria currently has the 8th highest inflation rate in Africa, with inflation being pervasive amongst other oil and gas producing countries. Malawi, Angola, and Mozambique record some of the highest rates in Africa with rates of 21.20%, 39.44% and 25.53% respectively.

In its October economic outlook report, the IMF predicts that consumer prices are to ease to 4.5% in 2016 from 4.7% in the previous year in emerging markets. However, inflation in sub-Saharan Africa is projected to climb to 11.3% from 7.0% as a result of the pass through effect of the currency devaluations that occurred in the period.

Inflation Rising in Kenya and Rwanda
In the month of October, Kenya’s annual inflation rate increased to 6.47% from 6.34% recorded in the previous month. This increase in prices is predominantly attributed to an increase in food costs. Rwanda’s inflation rate also increased in the month of October and was attributed to rising costs of food and non-alcoholic beverages, housing and utilities and transport.

Inflation Declining in Ghana, Senegal and Zambia
In the same month, countries such as Ghana, Zambia and Senegal recorded declines in their inflation rates. Senegal is the only country in the group to enter deflation, with the inflation rate for October recorded at – 0.3% from 1.2% in September. This is attributed to a decline in spending and subsequently a decline in the costs of housing and utilities, and transport. Ghana and Zambia recorded inflation rates of 15.8% and 12.50% from 17.2% and 18.9% respectively.

The November MPC meeting
The deliberations from the MPC meeting slated for the 21st – 22nd of November is likely to waver from the consensus for a more accommodative monetary policy stance. This is because the increase in the monthly rate might be signaling a possible convergence in headline and monthly rate.

Cutting rates might further increase inflationary pressures in the market. Therefore, the MPC is likely to maintain status quo on the benchmark rate.

The other scenario would be to increase interest rates to curb inflationary pressures. However this would be an unwise decision in an environment with contracting growth. A lack of transparent policies as well as a strong presence of the CBN in the forex market is unlikely to boost forex inflows, a desired effect of higher interest rates.

Outlook: Festive season
As we approach the Christmas season, we expect an increase in the prices of goods and services. Typically, in anticipation of higher prices, consumers revise their expectations and demand, which inevitably forces prices up. In order to take advantage of higher demand in this period, we also tend to observe artificial scarcity on the part of suppliers, which contributes to the increase in prices.