Analysts project inflation to slow down in July

Economic watchers have projected that the country’s inflation would decelerate in July compared to June when it stood at 34.19 per cent.

This projection came ahead of the release of the inflation figure for July 2024 by the National Bureau of Statistics expected on Thursday.

The NBS data indicated that the headline inflation rate rose higher in June to 34.19 per cent up from 33.95 per cent in May, due to higher food prices, particularly for cereals and wheat.

Analysts have said that several factors, including the ongoing insecurity in food-producing regions, the continued depreciation of the naira, and challenges in the country’s food sector contributed to the hike.

As of June, food inflation stood at 40.87 per cent.

“On a year-on-year basis, it was 15.62 per cent higher compared to the rate recorded in June 2023 (25.25 per cent). The rise in food inflation on a year-on-year basis was caused by increases in prices of the following items: millet whole grain, garri, guinea corn, etc. (bread and cereals class), yam, water yam, coco yam (potatoes, yam & other tubers class), groundnut oil, palm oil, etc. (oil & fats class) and catfish dried, dried fish-sardine, mudfish (fish class), etc.,” the NBS report partly said.

Projecting a slowdown, a Senior Financial Market Analyst with FXTM, Lukman Otunuga, said, “One of the key themes in Nigeria in 2024 has been runaway inflation, which jumped to 34.19 per cent in June – its highest level since 1996. However, the incoming CPI print is expected to show prices slowing in July, cooling to 33.95 per cent compared to 34.19 per cent in the previous month.”

Given the CBN’s aggressive approach towards raising rates, signs of cooling price pressures will be a breath of fresh air for consumers.”

In its macroeconomic update released on Tuesday, Meristem said that it expected a slowdown in food inflation in July 2024, driven by the increased supply of essential food items like yam, which led to lower prices.

“Other key staples like tomatoes and rice also saw a decline during the month. Moreover, the high base effect from July 2023 is anticipated to further temper inflation figures in July.

“For the core index, we anticipate a slight decline for July, primarily due to the high base effect from July 2023. However, the naira’s depreciation during the month (6.87 per cent month-on-month compared to 1.94 per cent in June) on the NAFEM window might offset some of this moderation, potentially slowing the pace of the decline. Overall, we anticipate a slowdown in the July 2024 inflation rate driven by these factors,” Meristem said in its economic update.

Thus, the firm projected headline Inflation to drop to 33.42 per cent, compared to 34.19 per cent in June 2024, representing a 77 basis point decrease and forecasted food inflation at 39.71 per cent, compared to 40.87 per cent in June 2024 and core Inflation (including all items less farm produce and energy) at 27.29 per cent, compared to 27.40 per cent in June 2024.

Afrinvest in its macroeconomic update also projected a decline in the inflation figure on the back of lower food prices.

“Based on our model projection, we estimate that the headline rate would decline by 107bps to 33.12 per cent in July. This expected decrease is largely attributable to the high base effect. More so, we opine that the recent moderation in the price of some farm outputs (e.g., yam, pepper, vegetables following early gains from green harvest) should support the projected moderation. As such, we forecast a decline in the y/y food inflation rate to 40.4 per cent from 40.9% in the preceding month. However, a major downside to our expectation is the PMS scarcity and FX volatility episodes (NAFEM rate lost 6.4 per cent) in the month,” the researchers at Afrinvest said.

They added, “Beyond the positive inflation outlook for July, we are of the view that the timely implementation of recent policy initiatives aimed at combating rising food prices by the FG (re-opening of more land borders and planned 150-day duty-free window for food importation) could support an extended short-term relief from the elevated price pressure. Overall, barring any major shock to FX and energy goods prices, we hold that the year-on-year headline rate should be on the downtrend for most of H2 (beginning from July), thereby translating to modest relief on household’s purchasing power.”