July 2019 inflation rate is expected to drop to 11.01 per cent from 11.22 per cent recorded in June 2019, according to FSDH Research. The expected fall in inflation will come from an expected boom during the harvest season this year.
The fall in the rate will be the lowest recorded in Nigeria since February 2016. The National Bureau of Statistics (NBS) is scheduled to release the July 2019 inflation figure on Friday.
The inflation rate target of the Central Bank of Nigeria (CBN) is between 6 per cent and 9 per cent this year.
The CBN, has in the last few years been initiating several policies to help promote the agricultural sector. The aim is to boost agricultural yields, which would in turn improve general price increases.
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CBN’s focus on the agricultural sector is deliberate, as food prices significantly affect the country’s inflation rate. Looking at the movement of food prices in the international market, the overall price of a basket of certain food items dropped in July relative to June 2019. In its July 2019 Food Price Index, the United Nations Food and Agriculture Organization (FAO) observed that the prices of food items in the international market decreased during the month. The FAO further noted that the prices of cereal, dairy products and sugar decreased between June and July 2019. The drop offset the increase in the prices of oils and meat recorded during the same period.
Despite the expected decrease in the inflation rate in the next few months, FSDH Research expects increased volatility in the inter-bank rates and a gradual increase in the rates at the Open Market Operations (OMOs) from August through to December 2019. This is due to huge maturities in excess of N9.62trillion of government securities which we expect to hit the Nigerian financial market during the period.
Ordinarily, the expected large inflow of funds into the financial system may lead to inflationary pressure. In this situation, the way to manage the expected high liquidity is for the CBN to increase its ‘mopping-up’ activities in the inter-bank market, leading to an increase in the OMO rate. The next few months would likely throw up some interesting financing and investment opportunities in the Nigerian financial market.
