By Modupe Gbadeyanka

Analysts at WSTC Financial Services Limited have described the 11 percent inflation rate target set by the Central Bank of Nigeria (CBN) as “largely optimistic.”

On Tuesday, CBN Governor, Mr Godwin Emefiele, disclosed that the apex bank was targeting an inflation rate of between 10-11 percent at the end of this year.

He made this disclosure during a meeting in Abuja with the Senate Committee on Banking, which invited him to inform what the CBN was doing about the high interest rates in the Nigerian banking industry.

This week, the National Bureau of Statistics (NBS) said inflation dropped to 16.25 percent in May from 17.24 percent a month earlier.

Reacting to this, WSTC Financial Services Limited, in a report on Thursday, June 15, 2017, noted that “the downward trend in the general price level has further reinforced our outlook on inflation in the current year.”

“However, the MoM surge in the food sub-index is indicative of existing inflationary pressure on food prices, and signals a possible downside risk to inflation in the months ahead,” it further stated.

“Additionally, we believe the CBN’s inflation target of 10 percent-11 percent at the end of 2017, is largely optimistic, particularly considering mounting pressure on food inflation.

“We note that such a target implies an assumption of no adjustment in the official exchange rate of N305/$ and the retention of the price of PMS at the current level in H2 2017,” WSTC Financial Services Limited submitted.

In its analysis, the firm said core inflation emerged as the key source of moderation in the headline index in May, as was the case in the preceding month primarily due to high base effect.

“Note that the price of premium motor spirit (PMS) was increased in May 2016 from N87 to N145. The Core sub-index declined by 180bps to 13 percent in May 2017 from 14.80 percent in April 2017, representing the seventh consecutive month of decline. Also, core inflation continued on its Month-on-Month (MoM) downward trend for the fifth consecutive month, suggesting receding inflationary pressure from the impact of the hike in energy prices (the price of PMS & electricity tariff) implemented in H1’2016.

“Food inflation also declined marginally by 3bps to 19.27 percent YoY in May 2017, from 19.30 percent in April 2017.

We believe this was due to a moderation in imported food inflation by 121bps, given the improved liquidity in the FX market and appreciation of the Naira in the parallel market segment.

“However, food inflation spiked MoM by 50bps to a high of 2.54%, indicating continued pressure from locally produced food items,” the report said.

http://www.businesspost.ng/2017/06/16/cbn-11-inflation-target-2017-largely-optimistic-report/