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March Inflation: Month on Month pressures comes to the limelight

• In our March Economic Update, we had stated that the confluence of moderation in the food and core basket would necessitate decline in March headline inflation to 11.25%. True to our words, the latest CPI data released this morning shows inflation remains tame, printing at 11.25% YoY compared to 11.31% reported in the prior month – bringing the 12- month average inflation rate to 11.4%. As expected core inflation slipped to 9.46%, down by 34bps, as average petrol price across the country declined to N145 per litter (-11%YoY) – overshadowing the uptick in diesel (+11% YoY) and Kerosene (+13%) prices. Food inflation at the other end only dipped by 2bps to 13.45% YoY mirroring increase in farm produce.
• • In a twist to the outing in the prior month, month-on-month inflation inched up by 6bps to 0.79% in March following price increase in the food basket (+0.88% MoM, February: 0.82%), which more than neutered the moderation in core inflation (0.53% MoM, February: 0.65%). Particularly, uptick in the food basket stemmed from recent increase in the prices of imported and local rice, similar to the prior month. Further more, recent update by FEWSNET guided that month on month seasonal price decline has gradually faded out with increase in certain areas of the north, following the completion of the dry season harvest in February.
  • Notwithstanding the expansion across major sub-indices in the core basket – HWEGF (+13 bps), Transport (+1bps), health (+10bps), clothing and footwear (+2bps) – which accounts for 66% of the core basket, core inflation still dipped by 12bps to 0.53% MoM. While we note the flat movement in petrol price during the month and decline in kerosene prices, diesel price increased 1.6% MoM, which further negates the rationale for the steeper decline in the core basket.
  • Overall, notwithstanding the recent queues at fuel stations across the country in April, the FG/NNPC’s stance of a stability in petrol prices in the near term in a bid to avoid inflationary pressures and ensure a soft landing with regards to the subsidy removal, we expect the moderation in YoY inflation to continue. However, completion of the dry harvest, incoming lean season, coupled with increase in energy prices (excluding petrol) drives our expectation of month on month increases in the inflation rate, going forward.
  More analysis to follow.