Easing consumer demand tempers inflation rate

Deceleration in farm produce and imported food, reflecting waning impact of festive period induced demand for grains and imported items may have impacted positively on the consumer price index (CPI), which measures inflation, as it closed lower at 11.37 percent (year-on-year) in January 2019, 0.07 per cent points lower than the rate recorded in December 2018 (11.44) per cent.

However, increases were recorded in all COICOP divisions that yielded the Headline index.
On month-on-month basis, the Headline index increased by 0.74 per cent in January 2019, same rate as was recorded in December 2018 (0.74) per cent.
At 59.3 points, the production level index for the manufacturing sector recorded a slower growth in January, when compared to its level in the preceding month, owing to weaker demand and high rate of unemployment.

The percentage change in the average composite CPI for the 12 months period ending January 2019 over the average of the CPI for the previous 12 months period was 11.80 per cent, showing 0.3 per cent point from 12.10 per cent recorded in December 2018.
The All items less farm produce’’ or Core inflation, which excludes the prices of volatile agricultural produce stood at 9.9 per cent in January 2019, up by 0.1 per cent when compared with 9.8 per cent recorded in December 2018.

On month-on-month basis, the core sub-index increased by 0.81 per cent in January 2019. This was up by 0.31 per cent when compared with 0.50 per cent recorded in December 2018.

The highest increases were recorded in prices of Domestic services and household services, Tobacco, major household appliances whether electronic or not, Medical and Dental services, Garments, Narcotics, Cleaning, repair and hire of clothing, Carpet and other floorings.

Analysts at Cordros Securities explained that the tapering headline consumer prices aligned with the expectations given the still stable foreign exchange, subdued energy prices, and passthrough from receding consumer demand for farm produce as the festive period concludes.

“In line with the trend, core inflation remained in the single digit region (9.9% y/y) as the combination of improved PMS supply and FX stability continue to keep a tight lid on energy inflation, and by extension, transport prices. For evidence, average PMS and LPG prices fell 23.7% and 1.2% from a year ago. Meanwhile, AGO and DPK prices surged by 5.3% y/y and 6.0% y/y, respectively, to cap gains in the core basket.

“Food prices tempered, shedding 5 bps to 13.51% y/y. The gain owed much to the deceleration in farm produce and imported food, an apparent reflection of the waning impact of festive period induced demand for grains and imported items. Elsewhere, m/m food inflation notched higher, on account of price pressure in processed food (c. 4% of food basket), even as farm produce moderated as we had expected.

“Certainly, a petrol price hike portends a sizeable upside risk to inflationary pressure. In our view, the recent recovery of crude prices foretells a further rising cost of under-recovery, and thus, increasing the likelihood of the FGN reviewing its regulated pump price higher to reflect market parameters. Whilst noting the positive connotation for the FGN (higher fiscal receipts), we expect energy prices to be managed, at least, through the election period”, the analysts posit.

The composite food index rose by 13.51 per cent in January 2019 compared to 13.56 per cent in December 2018.

This rise in the food index, according to the NBS, was caused by increases in prices of Fish, Bread and cereals, Vegetables, Meat, Fruits, Potatoes, yam and other tubers, oils and fats, soft drinks.

The urban inflation rate increased by 11.66 per cent (year-on-year) in January 2019 from 11.73 per cent recorded in December 2018, while the rural inflation rate increased by 11.11 percent in January 2019 from 11.18 percent in December 2018.