July 2023 CPI Report | Removal of PMS Subsidy & FX Liberalization Bites Hard
Earlier this week, the NBS released the inflation report for July 2023. Headline inflation spiked by 129bps YoY to 24.08% (vs 22.79% in June 2023), marking the highest rate recorded in Nigeria since the reconstitution of the CPI in 2009. The surge in Headline inflation is on the back of a jump in Food inflation (+173bps YoY to 26.98%) and Core inflation (+41bps YoY to 20.47%). It is however noteworthy, that after the removal of Premium Motor Spirit (PMS) subsidy and the resulting volatility in energy prices, the NBS has changed its definition of Core inflation from 'All items less farm produces' to 'All items less farm produces and energy'. Consequently, Energy inflation noted an uptick of 90bps YoY to 21.91% (vs 21.00% in June 2023). On Month-on-Month (MoM) basis, Headline inflation displayed similar trajectory as it advanced by 76bps to settle at 2.89% (vs. 2.13% in June 2023).
We maintain that the sustained depreciation of the Naira against the dollar and rise in petrol prices will further exacerbate inflation, particularly food prices, transport prices and energy prices. Hence, barring government intervention in the downstream oil and gas sector and improvement in FX supply, we believe that inflation will continue its uptrend. Consequently, we expect higher inflation reading for August 2023.
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