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‘October harvests to ease food inflation in fourth quarter’



With staple harvests due next month as a result of improved rains in the North-East region of the country, latest report by Renaissance Capital has reflected optimism of improved food prices that will ease headline inflation from last quarter of 2017.

According to the latest economics research by the firm, accelerating food inflation is offsetting the slowdown in core inflation, excluding farm produce, a move described as responsible for why headline inflation is moving sideways in the mid-teens and the real policy rate is still negative, in real terms.

Although there are concerns about the impact of the floods in Benue State, the firm however stated that with the rainy season taking its toll within and outside the northeast of the country, staple harvests that begin as late as October in northern areas are expected to be greater than last year, according to the Famine Early Warning Systems Network.


“This is attributed to increased access to inputs as well as strong production incentives for farmers due to very high staple prices. Near-term harvests imply we could see food inflation begin to soften from 4Q17, which is positive for headline inflation.

“However, when one strips out prices of farm produce – which monetary policy has no control over – core inflation is slowing nicely. Core inflation fell below the policy rate of 14.0% in May. This opens the prospect of a rate cut, in our view”, the report added.

With limited downside for energy prices and the gains from foreign exchange stabilisation narrowing, Rencap noted that there is limited downside for headline inflation.

“That said, we see core inflation at 11% at YE17, which we think implies scope for a rate cut of at least 1 ppt”, it added.It could be recalled that the Food Index increased by 20.28 percent (year-on-year) in July, up by 0.37 percent points from the rate recorded in June (19.91 percent). This represents the highest year on year increase in food inflation since the beginning of the new series in 2009.

The rise in the index was caused by increases in prices of bread and cereals, meat, fish, oils and fats, coffee, tea and cocoa, potatoes yam and other tubers and vegetables.

On a month-on-month basis, the Food sub-index increased by 1.52 percent in July, down by 0.47 percent points from 1.99 percent recorded in June.The average annual rate of change of the Food sub-index for the twelve-month period ending in July 2017 over the previous twelve month average was 18.25 percent, 0.38 percent points from the average annual rate of change recorded in June (17.87)percent.

On a month-on-month basis, the Headline index increased by 1.21 percent in July 2017, 0.37 percent points lower from the rate of 1.58 percent recorded in June.

The percentage change in the average composite CPI for the twelve-month period ending in July 2017 over the average of the CPI for the previous twelve-month period was 17.47 percent, 0.11 percent point lower from 17.58 percent recorded in June 2017.

The Urban index rose by 16.04 percent (year-on-year) in July 2017, down by 0.11 percent point from 16.15 percent recorded in June, and the Rural index increased by 16.08 percent in July from 16.01 percent in June.

On month-on-month basis, the urban index rose by 1.25 percent in July 2017, down by 0.35 percent point from 1.60 percent recorded in June, while the rural index rose by 1.18 percent in July 2017, down by 0.39 percent point from 1.57 percent in June.

The corresponding twelve month year-on-year average percentage change for the urban index increased from 18.69 percent in June to 18.43 percent in July, while the corresponding rural index also increased from 16.56 percent in June to 16.60 percent in July.


The ‘’All Items less Farm Produce’’ or Core sub-index, which excludes the prices of volatile agricultural produce eased by 0.30 percent during the month to 12.20 percent points from 12.50 percent recorded in June as all key divisions which contributes to the index increased.

On a month-on-month basis, the Core sub-index increased by 1.00 percent in July, 0.32 percent points lower from 1.32 percent recorded in June. The highest increases were recorded in clothing materials and articles of clothing, furniture and furnishing, books and stationary, medical services, glassware, tableware & household utensils, accommodation services and household textiles.

The average 12 month annual rate of rise of the index was recorded at 15.80 percent for the twelve-month period ending in July 2017, 0.42 percent points lower from the twelve month rate of change recorded in June.

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Food inflation
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