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Analysts Forecast Wide Gap of Inflation Increase in October



  • Analysts Forecast Wide Gap of Inflation Increase in October

Ahead of the release of consumer price index (CPI) data for October on Wednesday by the National Bureau of Statistics, analysts have projected that the gap of inflation increase would widen in the review month.

The firms of analysts, whose estimations were obtained are Dunn Loren Merrifield Asset Management Ltd, Financial Derivatives Company Ltd and FSDH Merchant Bank Ltd. Of the three firms, the least pace of increase in inflation projected is 27 basis points for October, which is 3 basis points higher than the 24 basis points recorded for previous month.

DLM forecast that CPI, which measures inflation would increase to 18.1 per cent year-on-year in October 2016; up by 0.27 per cent or 27 basis points from 17.9 per cent recorded in the preceding month. While FDC estimated that the headline inflation would rise marginally to 18.2 per cent, representing 0.3 per cent or 30 basis points increase from the previous month’s figures of 17.9 per cent, FSDH projected the October CPI to move up further to 18.17 per cent from 17.85 per cent of the previous month, translating to 32 per cent or 30 basis points increase.

This is in contrast to the situation in September when the CPI at 17.85 per cent (year-on-year), represented 24 basis points higher than 17.61 per cent in August 2016, which was a further reduction in the pace of increase compared to 48 basis points increase to 17.61 per cent in August over 17.13 per cent in July.

According to DLM, “Our model shows a movement in the food sub-index captured by “farm produce and processed foods” to 213.3points in October 2016 up from 182.6points in the corresponding period of the previous year. In addition, we expect a movement in the core sub-index to 205.4points up from 174.4points in October 2015. Hence, this translates into a food and core inflation of approximately 16.8 per cent and 17.8 per cent respectively in October 2016.

It recalled: “In line with our expectation, the headline inflation for September 2016 came in at 17.9 per cent; up from 17.6 per cent recorded in the preceding month .

This was supported by the rise in prices recorded in all divisions which contribute to the index. However, it was highlighted that the “communication‟ and “restaurants and hotels” divisions recorded the lowest rates of increase at 5.6 per cent and 9.6 per cent respectively.

Besides, FDC, which pointed out that, going by its estimates, “This will be the highest year-on-year inflation level in 11 years,” also forecast that, “a month-on-month inflation rate of 0.67 per cent, which if annualised is 8.38 per cent, approximately 1.92 per cent lower than the September’s level.”

Recalling that, “At its September meeting, the CBN expressed concerns about rising inflation, citing this as a reason for maintaining its contractive stance,” FDC said, “Given that there is major clamour for lower interest rates and a stimulus package as antidotes to the recession, the reduced monthly inflation rate may sound like music to the ears of the doves in the committee.”

In its own assessment, FSDH noted that, “The expected increase in the inflation rate will be driven by higher prices within the Food and Non-Alcoholic Beverages division, as well as increases in the energy and energy related prices.”

The FSDH analysts explained: “Our analysis indicates that the value of the Naira appreciated at both the inter-bank and parallel market by 0.91per cent and 2.35per cent respectively in October 2016. The Naira gained N2.81and N11 to close at US$/N308.81 and US$/N468 at the inter-bank and parallel market respectively.

“The appreciation recorded in the exchange rate in both markets between the two months under review should lower the pass through effect of imported inflation on domestic prices.

“The prices of food items that FSDH Research monitored in October 2016 moved in varying directions. The prices of tomatoes, vegetable oil, palm oil, rice and beans were up by 44.44per cent, 13.1per cent, 8.33per cent, 7.58per cent and 5.93per cent.

“While the prices of onions, yam, sweet potatoes, fish and garri were down by 20.58per cent, 18.06per cent, 13.89per cent, 6.58per cent and 1.6per cent. The price of meat however, remained unchanged. The movement in the prices of food items during the month resulted in a 0.67per cent increase in our Food and Non-Alcoholic Index to 212.51 points.

“We also noticed increases in Transportation; Housing, Water, Electricity, Gas & Other Fuels divisions between September and October 2016.

“Our model indicates that the price movements in the consumer goods and services in October 2016 would increase the Composite Consumer Price Index (CCPI) to 209.40 points, representing a month-on-month increase of 0.7per cent. We estimate that the increase in the CCPI in October will produce an inflation rate of 18.17 per cent.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

Crude Oil

Oil Prices Decline on Rising India COVID-19 Cases, U.S Inflation Concerns



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Global oil prices extended a decline on Friday following a 3 percent drop on Thursday as coronavirus cases rose in India, one of the world’s largest oil consumers.

Brent crude oil, against which Nigerian oil is priced, declined by 35 cents or 0.5 percent to $66.70 a barrel at 5 am Nigerian time on Tuesday while the U.S West Texas Intermediate (WTI) fell by 28 cents or 0.4 percent to $63.54 per barrel.

The commodity super cycle rally just hit a hard stop and the energy market doesn’t know what to make of Wall Street’s fixation over inflation and the slow flattening of the curve in India,” said Edward Moya, senior market analyst at OANDA.

The crude demand story is still upbeat for the second half of the year and that should prevent any significant dips in oil prices,” he added.

Prices dropped over a series of key economic data that stoke inflation concerns and forced experts to start thinking the Federal Reserve could raise interest rates to curb the surge in inflation.

An increase in interest rates typically boosts the U.S. dollar, which in turn pressures oil prices because it makes crude oil more expensive for holders of other currencies.

This coupled with the fact that India, the world’s third-largest oil consumer, recorded more than 4,000 COVID-19 deaths for a second straight day on Thursday, dragged on the oil outlook in the near term.

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Crude Oil

Brent Crude Rises to $69 on IEA Report



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Oil prices rose after the release of the International Energy Agency’s (IEA)  closely-watched Oil Market Report, with WTI Crude trading at above $66 a barrel and Brent Crude surpassing the $69 per barrel mark.

Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.

The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said yesterday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.

However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.

Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.

“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s COVID-19 demand shock have returned to more normal levels,” the IEA said in its report.

In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.

“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.

The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.

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Crude Oil

OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply



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The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.

This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.

According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.

The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.

OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.

The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.

On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.

Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.

On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.

This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.

However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.

“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.

The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.

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