The National Bureau of Statistics (NBS) is scheduled to release the inflation figure for January 2021 on February 15, 2021, based on the data release calendar available on the Bureau’s website.
Thank you for reading this post, don't forget to subscribe!Access Bank’s Economic Intelligence Unit forecasts headline inflation for January 2021 to rise to 16.64% from 15.75% recorded in December 2020. This will mark the 17th consecutive month of ascending inflation.
The towering trend reflects the effects from economic recession triggered by the ongoing pandemic. Our methodology entails the application of an autoregressive econometric model using lags of the composite consumer price index (CPI) and a survey-based inflation expectation within the same product definitions adopted by the NBS.
Transportation and food prices continued to ascend reflecting higher petrol prices and food supply disruptions. Given this pattern, we expect the CPI to settle at 361.77 points from 355.91 in the preceding month.
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Inflation Forecast Drivers
Although the reopening of land borders across thecountry played a role in price reduction for some products, the economy still reels from effects of the ongoing pandemic, electricity tariff hike, currency depreciation and economic recession, which all contributed to the price hikes in the month.
Prices of food and non-alcoholic beverages, the largest component in the consumption basket (with a weight of 51.8%) majorly sustained a mixed trajectory in prices. Some of the items that trended upward include but were not limited to; garri (18.6%), ogbono (14.3%), beans (7.6%), egg (7.2%), vegetable oil (9%), and sweet potatoes (8.3%) while some items recorded price decline namely tomatoes (38.5%), onions (23.3%), pepper (6.7%) and foreign rice (4%).
Although the reopening of land borders across the country played a role in price reduction for some products, the economy still reels from effects of the ongoing pandemic, electricity tariff hike, currency depreciation and economic recession, which all contributed to the price hikes in the month.
Petrol pump price remained between N159 and N169 per litre.
Probable Market Impact Points
Money and Fixed Income Market
We expect a continued marginal yield environment in the government T-Bills market. Yields on the 3-month & 9-month treasury bills rose to 0.43% and 1.36% on January 29th from 0.35% and 0.62% respectively in the prior period.
Monetary Policy Responses
The CBN unanimously left the MPR unchanged at 11.5% at its last meeting held in January 2021. This was in a bid to hasten the economy recovery process, maintain price stability, provide cheaper credit to improve aggregate demand, stimulate production, support recovery of output growth and a competitive rate environment that stimulates the much-desired foreign portfolio inflows in the short to mid-term. Nonetheless, we note that the CBN is likely to sustain policies that will cushion the negative effects of the coronavirus whilst enhancing overall economic growth.