July Inflation: Food inflation bolstered Headline CPI numbers
- Headline inflation for the month of July printed at 12.82% YoY, 2bps above our estimate of 12.80% and 26bps above the prior month of 12.56% YoY anchored mainly by uptick in food inflation. We believe the confluence of elevated transportation cost - a fallout of COVID-19 related restrictions -, lean season, currency depreciation in the parallel market (-3% to N471.5 in July) as well as the Islamic Festivity during the period spurred the hike in food prices. According to FEWSNET, market supplies declined substantially below average, while traders sold commodities at higher prices partly due to the restrictions as delays in movement of goods curbed the flow of stocks across markets. To buttress, prices of staple foods including maize, rice, millet, sorghum, and yams are above last year and the five-year average, according to FEWSNET. Consequently, farm produce rose by 59bps to 15.96% YoY, while imported food ticked 5bps higher, resulting in a 31bps uptick in food inflation to 15.48% YoY. Surprisingly, core inflation moderated by 3bps to 10.10% YoY despite increases across all sub-indices. For context, increases were seen in HWEGF (+11bps), Transport (+39bps), Furnishing (+14bps), Clothing (+13bps), Health (+51bps) amongst other sub-indices. This comes as a surprise to us as we believe increases across the sub-indices should have led to an uptick in core inflation numbers. We will seek more clarity on this.
- A glance at the month on month numbers revealed headline inflation increased 3bps to 1.25% MoM and 2bps above our estimate of 1.23% MoM. Similar to the annual numbers, food inflation bolstered the expansion, advancing 4bps to 1.52% MoM while core inflation dipped 11bps to 0.75% MoM. For context, a 20bps increase in farm produce and 1bp uptick in imported food anchored the rise in food inflation as the aforementioned points for food inflation weighed heavily on food prices in July. On the other hand, core numbers declined despite the rise in Transport (+6bps), Health (+1bp), HWEGF (+1bp), Clothing (+1bp) sub-indices MoM.
- We expect the continuous passthrough of currency depreciation and surge in transportation cost to keep headline inflation elevated. For the month of August, we expect the pace of expansion in headline inflation to slow owing to green harvest of yams and maize in southern areas and groundnuts and potatoes in the central states. Against this backdrop, inflation for the month of August is expected to print at 12.99% YoY and 1.14% MoM.
HWEGF: Housing, Water, Electricity, Gas and Fuel.
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