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Nigerian Inflation – Inflation Moderates Further in July

• Headline inflation for the month of July came in at 17.38%, reflecting a 37bps moderation from June 2021 figures (17.75%) and just 9bps above our estimate of 17.47% YoY. The uptick was driven by a marked increase in core inflation (+0.63% to 13.72%) as food inflation grew at a slower pace (21.03% from 21.83%) in the period.
• On a month-on-month basis, the numbers are in tandem with the YoY changes. Headline inflation moderated by 13bps to 0.93% MoM, premised on the 25bps moderation in food inflation to 0.86% for the month. We note the 49bps rise in core inflation to 1.31% for July, however this was netted off by the cushion provided by an ease on the food inflation front.
• In August, we expect the moderation in inflation to persist on a YoY basis, primarily dragged by the base effect from last year. However, downside risks stemming from the supply side forces remain poised to induce inflationary headwinds. Although farming activities are currently in their main season across the country with harvests going on in the south and land preparations in other parts, rainfall so far has been below average, slowing down farming activities. The situation is further compounded by insecurity in many of the food producing regions alongside the high and rising cost of farm inputs.
• With supply side concerns abating at a slower than expected pace and the possibility of a deregulation of the downstream sector still on the cards, amidst other supply side concerns, we expect the moderation in inflation to remain tepid in August, settling at 17.23% YoY.