Inflation Estimated to Drop to 15.6% before Year-end

The Consumer Price Index (CPI) has been projected to fall within the range of 15.60 per cent to 15.96 per cent for the rest of 2017. Analysts at FSDH Merchant Bank Limited, stated this in their monthly economic and financial market outlook for October 2017, obtained recently.

This, according to the financial institution, may impact yields on the fixed income securities. The inflation rate (year-on-year) dropped marginally to 16.01 per cent in August 2017, from 16.05 per cent in July 2017.

That was the seventh consecutive month of a decline in the inflation rate. Also, there was a deceleration in the month-onmonth inflation rate in August 2017, compared with July 2017.

The month-on-month change in the CPI stood at 0.97 per cent in August 2017, lower than the 1.21 per cent recorded in July 2017.

Year-on-year (y-o-y), the Food Price Index (FPI) stood at 20.25 per cent in August 2017, marginally down from 20.28 per cent in July 2017.

The FPI was driven by higher prices of bread and cereals; meat; fish; oil and fats; milk cheese and eggs, coffee, tea and cocoa.

In addition, the Core Index stood at 12.30 per cent in August 2017, higher than 12.20 per cent recorded in July 2017.

The largest increase in the Core Index in August, were recorded in clothing materials and articles of clothing; garments, passenger transport by air, motorcycles, shoes and other footwear, furniture and furnishing; books and stationary; non-durable household goods, pharmaceutical products and maintenance, repair of personal transport equipment, and glassware, tableware and household utensils.

“Our forecast shows that the inflation rate will remain in the range of 15.60 - 15.96 per cent for the remainder of 2017. We estimate that the inflation rate would decrease marginally to 15.96 per cent in September 2017.

This may impact the yields on the fixed income securities,” the report stated.

Similarly, the external reserves recorded decline in the first week of September 2017, as the CBN intervened in the foreign exchange market to ensure naira stability.

The external reserves have resumed consistent growth since September, 2017.

The 30-day moving average external reserves increased by 2.07 per cent to $32.49 billion as at end-September 2017, from US$31.83 billion at the end of August 2017.

The report also showed that average external reserves stood at $32.03 billion as at the end of September 2017, from $31.49 billion in August 2017.

According to the FSDH report, the outlook for the macroeconomic environment in Nigeria remains positive, as oil production and oil price remain favourable in the short-term.

It noted that the stability in the value of the naira was expected to attract additional foreign capital, which would increase the external reserves.

The value of the naira appreciated at the various segments of the foreign exchange market in September 2017, compared with August 2017.

The premium between the interbank and parallel market was marginally tighter in September 2017, compared with August 2017.

Furthermore, it stated that the availability of foreign exchange in the Investors’ and Exporters’ Window (I&E Window) to meet genuine demand and the readiness of the CBN to support the foreign exchange market, would continue to support the value of the naira.

Month-on-month, the value of the naira appreciated marginally at the inter-bank market

to N305.75/US$ as at the end of September 2017, a marginal appreciation of 0.03 per cent from N305.85/US$ at endAugust 2017.

However, the average exchange rate at the interbank market depreciated by 0.07 per cent to stand at N305.89/US$ in September 2017, compared with N305.67/US$ in August 2017. The parallel market rate appreciated in September 2017, compared with August 2017.

The naira appreciated at the parallel market by 0.68 per cent to close at N365.50/US$ at the end of September 2017, from N368/US$ at end-August 2017.

It advised investors to take position in the treasury bills yields of 180-day and 364-day despite the drop in the NTB yields, as current yields on both the bills are still higher than inflation rate. “Investors should realign their portfolios to increase the long-dated bonds Investors with foreign exchange should take advantage of the opportunities in some Eurobonds in the market.

“The average prices on the FGN Eurobonds were higher in September 2017 than in August 2017. Consequently, the average yields of the bonds closed lower in the month of September 2017 than in August 2017.