Meristem Securities Projects 13.49% Inflation Rate for September
After 12-month straight uptrend, Meristem Securities Limited has forecasted another increase in headline inflation rate to 13.49% for September, 2020.
The investment firm made the estimate ahead of September 2020 inflation report by the National Bureau of Statistics (NBS) expected to be released on the 15th of October 2020.
“We envisage an uptick in the headline inflation rate to 13.49%, from 13.22% reported in August 2020”, Meristem remarked.
This stands at 29-months high amidst persistent negative return in the fixed income market.
Food prices have gone up significantly, widening Nigeria’s misery index.
Federal Government has been rolling out palliative measures to reduce the impact of economic lockdowns on citizens.
However, this has proven to be insufficient as unemployment rate crossed 27% in the second quarter of 2020.
The apex bank inflation targeting was between 6% and 9%, but despite price instability in the economy, the monetary policy committee cut benchmark interest rate to 11.5%.
The move, according to analysts, was to support the CBN drive to reflate the economy amidst 6.1% drop in GDP in the second quarter.
In its expectation for August, Meristem recounted how global food prices rose to a 7-month high in August and higher energy prices stimulating inflation.
However, in September, analysts saw that while seasonality factors (onset of autumn) and buying interests kept food prices elevated.
Thus, new headwinds in the international oil market triggered a depression of aggregate prices in many climes.
Consequently, Eurostat expects inflation in the Euro Area to decline further to -0.30% year on year in September as against -0.2% in August and 0.4% in July.
In the United States, the firm said personal consumption expenditure rose 1.0% in August – largely on food services, accommodation and healthcare.
This spur some upward price movements, like most of advanced markets, expectations are that the slip in energy prices would taper the inflationary pressure.
Crude oil prices on the last day of September declined by 956 basis points (bps) from USD45.28 in August to USD40.95.
This reflected the breach in the OPEC+ quota by the United Arab Emirates, a resumption of oil production in Libya and slower demand from the world’s largest oil importer, China.
“Although some of our worries on the prospects of oil prices have begun to crystallize (worries on China’s stock pile of crude in previous months), we still hold that a sustained rebalancing of the oil markets would depend on a COVID-19 medical breakthrough and stricter compliance with OPEC+ production quotas”, the firm explained.
In Nigeria, analysts explained that the lingering inflationary pressures will remain the key drivers of upward price movement.
However, Meristem expects the increment of the pump price of petrol in September to drive core inflation, while higher food prices will continue to spur headline inflation higher.
In the months leading up to September, the firm cited the sustained border closure, insecurity challenges in Northeast Nigeria and flooding in Key food producing areas, as major factors that have kept food prices elevated.
Analysts noted that the planting season finally resumed in September following the “August break” of the rainy season, which we expect to positively impact food supply over the coming months.
However, in the near term, the supply shortfalls of farm produce will persist, and this is expected to spur more food price hikes in the month.
It would be recalled that in September, the Petroleum Products Pricing Regulatory Agency (PPPRA) revised the pump price of petrol to NGN151.56 from NGN138.62 in August.
“We expect this to have a ripple effect on costs and prices”, analysts at Meristem Securities stated in a note.
As a direct consequence, the firm said it expects higher transportation and logistics costs.
Meristem explained that data from Central Bank of Nigeria’s September Purchasing Manager Index (PMI) report supports its expectation.
PMI revealed that input and output prices rose during the month.
“Hence, we expect headline inflation to come in at 13.49% year on year in September” Meristem Securities stated.
Read Also: ‘FX Scarcity, Supply Chain Disruption Support Rising Inflation’
Meristem Securities Projects 13.49% Inflation Rate for September
