Renaissance Capital forecasts improved food prices to ease inflation in Q4

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Renaissance Capital has expressed optimism that improved food prices will ease headline inflation in Q4 of 2017, a consequence of staple harvests next month engendered by improved rains in the North-East.

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.

The report said although there are concerns about the impact of the floods in Benue State, 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 Q4 ‘17, 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.

 

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