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February 2020 Inflation Review - Headline inflation inches higher on bottoming food prices, VAT

Headline inflation inches higher on bottoming food prices, VAT

Nigeria’s consumer inflation inched higher to 12.20% y/y (Vetiva estimate: 12.34% y/y) in Feb’20, data from the National Bureau of Statistics (NBS) showed. This is a faster inflation rise compared to Jan’20 (12.13% y/y) and 11.37% y/y a year ago.

Monthly inflation cools on weak demand

On a monthly basis, all inflation indices eased, reflecting sluggish aggregate demand. Lending credence to the hypothesis of weaker demand in Feb’20 is the Purchasing Manager’s Indices readings for Feb’20 which revealed that, although purchasing managers’ purchases grew at a faster pace in the month, new order levels grew at a slower pace and the stock of finished goods grew at a faster pace, indicative of weaker than anticipated demand. As a result of weaker demand from consumers, the monthly headline inflation slowed to 0.79% m/m (Jan: 0.87% m/m) led by the 12bps m/m moderation in food inflation from 0.99% m/m in Jan’20 to 0.87% m/m in Feb’20.

Core prices to limit inflation moderation

Although we expect domestic demand to be in congruence with the global trend and remain fragile, we see little room for a sharp moderation in inflation in FY’20. As such, we expect the annual inflation rate for FY’20 to print at 11.5% y/y, weaker than our previous estimate of 11.8% y/y as fears of an impending recession and the impact on supply chain disruptions rein in domestic demand.