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Nigerian Inflation – A word on recent flood disaster

• Food pressures will be obvious in the near term…: In early August, Nigeria awoke to severe flooding in Benue and Katsina states, which also subsisted into September. Unlike the 2012 flood tragedy, the recent flooding did not have a largely ubiquitous spread. However, its intersection with lean season in the North, front loaded festive-induced demand pressures (i.e. Eid-el-Kabir celebration) as well as a single month human displacement of ~100,000 people in the nation’s “food basket state” suggest that prior expectation for another food inflation moderation in August is now a tall order. In fact, the recent flood disaster lingered longer than was earlier feared and our communication with sources within the bureau suggest that transport inflation could, once again, remain sticky despite moderations in diesel and PMS prices.
• Thus, contrary to previous expectation, we now see scope for food pressures in the month of August and settle for a MoM reading of 1.6%. This implies an August YoY food inflation of 20.78% (vs. 20.27% YoY in July). Farther out, the extension of flooding into September looks set to limit pass-through from commencement of main harvest. For October through December, our expectation for food inflation is also slightly ahead of trend levels (+3bps higher than the average over the three years leading to 2016 at 0.81% MoM) with Nigerian Metrological Agency having highlighted potential impact of shorter length of growing season in many parts of the country.
• On balance, we see scope for food inflationary pressures to weigh on the coming CPI reading for August despite expected moderations on the core side of things. Precisely, we now look for headline inflation of 16.22% YoY in August 2017 (vs. +16.04% YoY in prior forecast) with our projected mean inflation for full year at 16.7% YoY.