FREE

April 2023 Inflation review - Inflation nudges higher for the fourth consecutive time

Inflation nudges higher for the fourth consecutive time

According to National Bureau of Statistics data, headline inflation increased to 22.22% y/y in April close to our in-house estimate of (Vetiva: 22.18% y/y) and rising 18bps from March (Mar'23: 22.04% y/y). The increase was driven by higher energy and food prices over the previous year. Month on month, headline inflation increased to 1.91% (March'23: 1.86% m/m), owing primarily to seasonal increases in food prices.

 

 

Seasonality sends food inflation uphill

Food inflation increased by 16 basis points in April to 24.61% y/y (March'23: 24.45% y/y). The increase was driven by higher farmgate prices (+34% y/y), prices of potatoes, fish, oils and fat, fruits, bread and cereals, vegetables, yams and other tubers rose the fastest. Food inflation rose to 2.13% m/m in April (Mar'23: 2.07% m/m) due to limited supply from the planting season and increased demand from the religious festivities of Easter and Ramadan.

 

Core inflation advances further

Because of the relatively stable exchange rate, core inflation slowed to 1.46% m/m in April (Mar'23: 1.84% m/m). On the other hand, annualised core inflation increased to 20.14% y/y (Mar’23: 19.86% y/y). The highest pressures were observed on the prices of gas, fuel, air transport, liquid fuel, vehicle spare parts prices, medical devices, lubricants for transport equipment and road transport highlighting high energy and currency pressures compared to a year ago.

 

MPC likely to maintain hawkish posture as inflation intensifies

We expect headline inflation to rise to 22.45% y/y in May, driven by continued pressure on food prices as a result of the planting season. However, we do not rule out the possibility of a softening due to high base effects. For outer months, we anticipate that the scheduled withdrawal of fuel subsidies in H2’23 could put pressure on consumer prices. Given this, we forecast full-year headline inflation of 23.30% y/y in 2023 (2022: 18.76% y/y).

 

Looking ahead to the MPC meeting later this month, we expect that the committee could raise interest rates by 50-100 basis points due to rising inflation. Despite the fact that the Nigeria apex bank has raised interest rates six times in a row since it joined the hawkish trend a year ago (May 2022), inflation has remained stubbornly high and has continued to rise. The inflation triggers in Nigeria remain largely structural; this could indicate that the CBN's monetary policy tools may not be sufficient in taming Nigeria’s Inflation.