Inflation Rate to Tick Up by 0.08% in July – Meristem

Inflation Rate to Tick Up by 0.08% in July – Meristem

Analysts at Meristem Securities Limited have projected an uptick in July inflation rate by 0.08% to 12.64%.

The nation’s headline inflation has been on ascendancy for 11-months straight before it peaked 12.56% in June, according to Bureau of Statistics.

With inflation rising faster than benchmark interest rate, average return in the fixed income market has dropped significantly.

Even deposit money banks in the country have had to lower deposit rates pricing follow the low interest rate environment.Inflation Rate to Tick Up by 0.08% in July – Meristem

As inflation rate surge, return on government securities including Treasury Bills have plunged, though bond segment remain bullish for lack of attractive opportunities elsewhere.

Meristem said the expansionary measures employed by monetary policy authorities coupled with the disbursement of COVID-19 stimulus packages have contributed to the elevated level of system liquidity across developed nations, spurring the bullish sentiment witnessed in the equities market in Q2.

To a large extent, analysts explained that the tunes in the global financial markets have been markedly dictated by the announcement of progress in vaccine developments, public opinion polls about the upcoming US presidential election and the recovery in energy prices.

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Nonetheless, the firm stated the rising number of confirmed COVID cases across nations -particularly in the US and the impact of the second wave of the virus supports the bearish outlook for the global economy in 2020.

High Prices Exacerbated by Illiquidity in I&E Window:

The Monetary Policy Committee (MPC) voted to retain the MPR at 12.50%, despite the spike in the CPI to 12.56% from 12.40% in May.

Given the ill-funded state of the Investors and Exporters FX Window, importers have resorted to the relatively expensive parallel market to fulfill their dollar demands.

Meristem said this, in addition to other structural challenges, have contributed to the uptick in inflation.

“We also acknowledge the impact of the Eid Kabir celebration on food prices in July, lending credence to our forecast of a rise in the Consumer Price Index.

“On a balance of these factors, we expect an uptick in July inflation to 12.64%”, Meristem Securities noted.

Inflation Rate to Tick Up by 0.08% in July – Meristem

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