Analysts See Inflation Slowdown as NBS Sets to Release Data
Analysts see headline inflation rate slowdown in August as the National Bureau of Statistics sets to release data. Nigeria has been consumers’ price index slowdown since April after a 19 months consecutive jump.
In July, the nation’s headline inflation printed at 17.38%, according to data from the Bureau of Statistics, thus causing yields in the fixed income space to drop.
Projecting for the month of August, Meristem Securities Limited said in a report that inflation is expected at 16.89%, a 49 basis points drop when from 17.38% year on year print in July.
Meanwhile, Cordros Capital expects an average increase in the price level to slow down to 16.95%, a 43 basis points decline from the July reading.
Meristem Securities explained that monetary authorities in developed nations have hinted at the gradual easing of their assets purchase program- the initial phase in reversing their accommodative stance.
This decision is primarily driven by the growth in the gross domestic product -the United States sees 12.20% and the European Union see 1.9% in Q2:2021- and the falling unemployment rate.
Analysts noted that the unemployment rate in the Eurozone fell to 6.90% in July from 7.10% in June. The US witnessed a similar decline in its unemployment rate, which fell to 5.2% in August from 5.4% in July, though the most recent job report in the US lagged expectation with only 235,000 new jobs.
The underwhelming job data in the US reflects concerns about the expected economic growth given the rapid spread of the delta variant and other more contagious variants of the coronavirus, according to the report.
Additionally, analysts said the inflation rates which have surpassed the monetary authority’s 2% benchmark of 5.4% in the U.S and 3% in the EU makes a case for the tightening of monetary stance earlier than previously expected.
Meristem Securities analysts hold that the tapering of fiscal supports and improved vaccination efforts would result in a moderation of inflationary pressures in the mid-term.
However, supply chain disruptions that could potentially fallout from additional lockdown measures pose risks to our prognosis. In its most recent meeting, OPEC+ reinstated the continued easing of production cut with a rollback of 400,000bpd.
Oil prices took a rather surprising turn, increasing to USD 72.22 per barrel from US$68.75 on the 23rd of August, specifically triggered by the impact of the Hurricane in Louisiana, which affected oil supply from the region (oil production in Louisiana is c. 1.7mbpd).
“While we envisage a gradual return of supply from the region in the near term, we expect oil prices to hover around present levels due to stronger demand for oil as economies continue to reopen globally.
“We, however, note that the spread of the delta variant of Covid can alter oil demand and push oil prices downwards”.
Meristem Securities analysts indicate an expectation of reduced pressure on food prices. Analysts noted that the harvest of major food items like Yam, Maize, Beans, Crude palm oil and Vegetables began in August.
“The improvement in supply should translate into lower pressures on the prices of these items. We also envisage a moderation in the prices of other food items like eggs as the prices of animal feeds begin to moderate.
“Given the high base last year and our opinion concerning increased supply in August, we anticipate slower growth in the food inflation index, translating to a further moderation in the inflation rate.
“We, however, note the increased cases of insecurity in the food-producing regions as potential risks to our projection”, Meristem explained.
On core inflation, analysts see exchange rate volatility in the parallel market during the month of August, which should influence the uptick in the core inflation index.
Read Also: Analysts See Moderation in Headline Inflation Rate
At its September policy meeting, the Governing Council of the European Central Bank (ECB) voted to keep the interest rate on the main refinancing operations unchanged at 0.0%.
Although the Governing Council will continue to conduct net asset purchases worth EUR1.85 trillion under the Pandemic Emergency Purchase Programme (PEPP) until at least the end of March 2022, analysts at Cordros Capital highlight that it expects the pace of purchases to be moderately lower than in the previous two quarters due to the favourable financial conditions.
Notwithstanding, the Council cautioned that the envelope could be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.
“We note that the Council did not provide further details on the tapering schedule – we think it has to do with the concerns over rising infection rates in the United States and as the Federal Reserve hesitates to wind down its asset purchases.
“Accordingly, we look for the decision on the exact end of the pandemic-induced stimulus package at the December meeting”, the firm added.
According to China’s National Bureau of Statistics (NBS), headline inflation in the country moderated to 0.8% year on year in August from 1.0% in July– the lowest since March 2021 when it shows 0.4%.
Cordros Capital said the moderation was driven by the sustained downtrend in the food index given the continuous decline in pork prices in line with the recovery of the country’s pig herd size from the African swine outbreak that affected the country between 2019 and 2020.
Similarly, the non-food basket moderated due to a slow rise in transportation prices. On a month-on-month basis, consumer prices rose by 0.1% compared to 0.3% m/m in July.
“While we expect improved food supply to moderate prices in the near term, increased mobility and higher energy prices should exert upward pressures on the non-food index. Accordingly, we expect that headline inflation would range between 0.9% and 1.2% over the near term”, Cordros noted.
Analysts See Inflation Slowdown as NBS Sets to Release Data
