With inflation down to 11.61 per cent in May this year, financial analysts are envisaging a further drop in the rate at which the price of goods and services increase when the National Bureau of Statistics (NBS) releases the data for June 2018.

NBS is expected to release inflation figures for June later this week. Consumer Price Index which had dropped to 15.13 per cent in January this year from around 18 per cent last year, has been trending towards the single digit target of the Central Bank of Nigeria (CBN) recording 16 consecutive declines.

While analysts at FSDH Merchant Bank are envisaging a further drop to 10.94 per cent, Financial Derivatives Company analysts are more conservative forecasting decline to 11.1 per cent in June 2018 from 11.61 per cent recorded in the month of May.

According to analysts at FSDH, the drop in the inflation rate would reflect the base effect in the Composite Consumer Price Index (CCPI) from the previous year and slower rate of increase in prices. The analysts said, “We note that consumer prices increased in June but at a lower rate than the increases recorded in May.”

The analysts also noted that the Food Price Index (FPI) published by the Food and Agriculture Organization (FAO) for the month of June 2018 shows that the Index averaged 173.7 points, 1.3 per cent lower than the value for May 2018, and representing the first month-on-month decline in 2018.

However, FDC analysts whilst noting that the rate of decline in the price level has slowed significantly, noted that the inflation trend may soon reverse as government spending is expected to increase with the budget being passed.

“Disturbingly, month-on-month inflation is projected to rise to 1.13 per cent and annualized at 14.4 per cent, driven by the increase in the price of diesel and the intensity of the herdsmen conflict in the middle belt Nigeria.

“This is partly attributable to waning base year effects and the normalization of the inflation curve. The import of this divergence between the monthly and annual inflation movement is that it would appear that the annual inflation is likely to bottom out very soon.

“There are some extraneous circumstances and aberrational developments notably the sharp rise in the price of diesel, the main automotive fuel for distribution and logistics. Also, the intensity of the herdsmen conflict and the displacement impact on commodity output and prices, specifically, tomatoes, onions and egusi (melon),” the analysts noted in the FDC Monthly economic bulletin.

The CBN in its MPC communiqué of May had raised concerns about the risks to inflation and its growth retarding consequences. A further decline in inflation is expected to have very serious implications on the deliberations at the upcoming meeting of the MPC.

The IMF has warned that most African economies run the risk of higher inflation if they adopt an accommodative stance, with exchange rate weakening consequences. President Muhammadu Buhari had assented to the 2018 appropriation bill last month with a promise to request for a supplementary budget shortly. The expansionary effect of these measures and its link to inflation means that the country is likely going to see an increase in annual inflation.