EUR 3.48 For Business Accounts Only

Nigerian inflation – A temporary pause on a downward trend

• In the month of October, Nigeria’s consumer price index sustained its moderation, to a 17-month low of 15.91% YoY, as modest gains from food offset a slight increase in the core basket. The latter increased by an annual rate of 12.14%, 2bps higher than September’s reading, largely underpinned by subsisting inflationary pressures across key sub-segments. Elsewhere, while food inflation attuned to the impact of harvest season on food prices, the scale of moderation expected was capped by pressures in processed food and imported food segments. Consequently, food inflation moderated slightly by 1ppt to an annual rate of 20.31%.
• Soft Headline, but MoM is firming: Month-on-month (MoM) inflation was more reflective of the underlying price pressures. After moderating by an average of 27bps in the last four months, MoM inflation declined by 3bps in the month of October to 0.76%, largely reflecting price pressure at both sub-components. Specifically, while MoM food inflation came in lower at 0.85% relative to prior months’ reading (0.87%), the reading tracked slightly ahead of our prior five-year October mean of 0.71%^.   Elsewhere, October’s MoM core reading came in at 0.77%, its lowest level in eight months.
• Subsisting food pressures underpin bleak outlook for inflation: Given the conclusion of the main harvest in October, we now expect firming MoM headline inflation to be evident in the month of November underpinned by an uptick in food inflation which should offset gains from subdued core inflation reading. On the core front however, we expect MoM reading to sustain its decelerating trend in November as gains from monthly sustained FX liquidity persists and against the backdrop of fading supply shocks.  On balance, we now look for MoM headline inflation reading of 0.88% in November 2017 with the implied YoY reading expected to come in at 16% YoY.
• In December, we expect MoM headline inflation to remain elevated and dictated by inflationary pressures on the food index –a fallout of the festive Christmas period while sustained FX liquidity underpins MoM core inflation at subdued levels. Overall, we look for December and 2017 mean YoY headline inflation of 16% and 16.61% respectively. 
• Absence of near term supply shocks to drive benign inflation over 2018: As iterated in our prior reports, we see little scope for substantial shocks on headline inflation in 2018. Precisely, against the 2019 elections and what looks set to be, a tough electioneering campaign, we expect PMS and electricity prices to remain relatively stable. Against these backdrop, we see scope for substantial deceleration in headline inflation in 2018 owing largely to high base effects from 2017 with headline inflation projected to average 13.3% over H1 18. Consequently, we expect that the argument in favour of elevated rates to keep real return positive to lose steam over H1 18 owing to high base effect and the absence of significant price shock which should ease the scope of inflationary pressures on headline inflation.

 

• See attached for full report