Inflation report for the month of January 2017 which is due to be released on the 15th of February 2017 by the National Bureau of Statistics (NBS) is expected to show a marginal increase in the headline inflation of 18.56% as against the December 2016 figure of 18.55%.

According to a team of analysts from Lagos based Meristem Securities Limited, although the Naira depreciated marginally by 0.08% at the Interbank market, the parallel market rate fell by 1.61% to NGN498.00/USD at the end of January 2017, due to persistent FX demand during the period. Given the historical trend in imported inflation, they believe that this development signals continued hike in production costs, thus, impacting negatively on general price levels during the period.

They noted the increase in some major commodities in the country in January over the previous period and anticipate an increase in the food index given the rise in the price of certain food items (e.g. turkey, cocoa, fruits amongst others).

Also, the monthly commodities watch data released by the World Bank showed increases in the international price of palm oil (+2.28%), tea (+2.73%), cereal sub-index (+4.08%) amongst others, they noted the possible pass-through effect of these items to the index level of imported food during the period.

They observed a significant surge in the price of building materials in January, adding that this may cause an upward trend in the Housing, Water, Electricity, Gas and other Fuel sub-index.

On the other hand, Transportation, Clothing and Footwear, Entertainment, Communication sectors may have experienced declines during the period after increasing at a faster pace in December due to the festive season. They therefore expect the core sub index to slow down marginally.

“Overall, we expect the base effect of 2016 (which will be more pronounced by March 2017) and gains from agriculture in 2017 to offset the pass-through effects of further depreciation of the naira and possible hike in electricity tariff. Also, we view the likelihood of an upward review of PMS price as remote, due to its political unpopularity,” they said.

In view of inflation expectations, they project that demand in the fixed income space will remain skewed to the short end of the curve with increased exposure at the long end when inflation begins to temper and the policy rate reduction becomes very imminent.


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