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NSR H2 2019 Excerpts - Inflation - A tale of two seasons

• 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 H1 19 and delineate our outlook for inflation over H2 2019.
• Consumer prices ticked up by 5bps to 11.32% over the first half of 2019, mirroring the conflict induced increase in food prices in Q2 19. For the first three months, inflation maintained a downward trajectory, followed by an unanticipated rise in farmers-herdsmen conflict which changed the inflationary trend in April and May. Eventually, the tide calmed in June as the anticipation of a favorable harvest season drove an increase in market supplies. Consequently, inflation declined in the month of June. Looking at the components, food inflation ticked up by 34bps to 13.58% YoY mirroring the telling impact of conflict in the north and seasonal increase in food prices. At the other end, the core basket maintained a downward trajectory, declining by 53bps to 9.39%) following NNPC’s drive to leave petrol prices unchanged at N145/litre.
• Over the rest of the year, we foresee the current administration would retain its socialist modus operandi, limiting the downside risk to core inflation. That said, we shift our focus to heightened tensions in the north which took a toll on food inflation over the first half of the year. Continued efforts to resolve the tensed security condition in the Northern region and reduced risk of flooding relative to the prior year, limits the downside risk to food inflation in coming months. According to FEWSNET, markets are expected to remain well supplied during the lean season through September. Further amplifying the market supplies is the main harvest season which will begin in October with favorable harvest expected in the last two months of the year. That said, we expect average inflation rate to print at 11.2% YoY (2018: 12.2% YoY).