NSR H1 2020 Excerpts - Inflation set for a double whammy in 2020!
- In this morning’s cut-out of our core strategy document – The Nigeria Strategy Report, we focus on the major themes that steered consumer prices over H2 19 and delineate our outlook for inflation over 2020.
- In our H2 19 NSR, we postulated that inflation would edge southwards hinged mostly on abating food prices and core inflation. Precisely, we expected that docile flooding in farming areas, curtailed tensions in the North, improved market supplies as well as fixed PMS prices by the government would anchor declines in headline inflation. While these factors came to fruition in July and august, with both food and core prices moderating - the tide turned in September. Towards the latter part of August, FG announced a formal closure of the Nigerian borders in a bid to curb smuggling of illicit items into the country. Consequently, the influx of food products like rice, vegetable oil, frozen foods, etc, into the country was adversely impacted – thereby sending food prices higher. Against this backdrop, food inflation ascended 30bps to 13.88% over H2 19, transcending a 45bps decline in core inflation to 8.94% over similar period. On that note, headline inflation ticked 14bps higher to average 11.46% over the second half of 2019, relative to H1 2019 – with average inflation for the year 2019 printing at 11.40%.
- In setting our view on inflation over 2020, we analyse possible shocks to the CPI - highlighting our views on currency, hike in electricity tariff, increase in VAT (value added tax), lingering impact of the border closure and removal of petrol subsidy. For us, the hike in electricity tariff would drive upward pressure on core prices as we see no hike in petrol prices and expect currency to remain relatively stable this year. Elsewhere, we believe food inflation would trend higher in 2020 relative to 2019 as the ongoing border closure and VAT increase (from 5% to 7.5%) would keep food prices at elevated levels. That said, we project an average inflation rate of 13.8% YoY (2019: 11.40% YoY) and a MoM inflation of 1.07% (2019: 0.95% MoM) which serves as our base case scenario.
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