The National Bureau of Statistics (NBS) report has revealed that the annual inflation rate year-on-year (YoY) declined marginally by 0.15 per cent to 16.1 per cent in the month of June 2017 from 16.25 per cent recorded in May. This decline is the fifth consecutive in the rate of inflation since January 2017.
The sustained decline in the annual headline inflation is as a result of the deceleration in the core inflation and food inflation. Evaluating on a month-on-month (MoM) basis, NBS shows that inflation rate increased by 1.58 per cent in June from 1.88 recorded in the preceding month. The core inflation for the month of June stood at 12.5 per cent, indicating a 0.5 per cent decline YoY from 13 per cent recorded in May 2017. This will be the 8th month of continuous decline in the core index since November 2016.
However, on a month on month basis, core inflation increased to 1.32 per cent from 1.17 in May. On the other hand, the report showed that, even as the June food inflation YoY declined to 19.91 per cent from 19.27 recorded in May, there is still continued pressure in food prices in the country.
The report stated: “The Food Index increased by 19.91percent (year-on-year) in June 2017, down by 0.64 percent points from the rate recorded in May (19.27 percent) indicating continued pressure in food prices. “Price movements recorded by all items less farm produce or core sub-index rose by 12.50 percent (year-on-year) in June, down by 0.50 percent points from rate recorded in May (13.00) percent. This represents the 8th straight month of decline in the core index since November 2016.”
Meanwhile, average fare paid by commuters on intra-city journey increased by 0.32 per cent and for intercity decreased by 0.34 per cent month-on-month. Expectations Analysts at FSDH Merchant Bank had predicted “Although the inflation rate has maintained a downward trend, we do not expect it to drop to single digit in 2017. In addition, we believe that the Federal Government’s decision on Premium Motor Spirit (PMS) price and electricity tariff remains the downside risks to low inflation rate in the short-to-medium term.
The decline in the inflation rate may impact the yields on the fixed income securities. “However, we do not believe this will be enough justification for the Monetary Policy Committee (MPC) of the CBN to increase interest rate when it meets on July 24-July 25, 2017. “Yields on fixed income securities may trend marginally lower in July 2017 as a result of the following factors: the MPC decision at its July 2017 meeting, further decline in the inflation rate in June 2017, as well as, the liquidity and stability in the foreign exchange market.”