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February Inflation Review - Inflationary pressures intensify despite base effects

​Nigeria’s February 2017 headline inflation came in higher than expected at 17.8% year-on-year (Vetiva & Bloomberg Consensus: 17.2%). Though inevitable base effects moderated the print from 18.7% in January, an upswing in month-on-month inflation – going from 1.0% in January to 1.5% in February – limited the impact of the high base. This smaller-than-expected fall in inflation is still a 6-month low and the first time inflation has declined since October 2015. The rise in m/m inflation was observed across both Core and Food Sub-Indices. Core Inflation rose to 1.1% m/m from 0.7% m/m in January whilst Food Inflation rose from 1.3% m/m to 2.0% m/m. Amidst this, Food Inflation rose from 17.8% to 18.5% in February – despite base effects, whilst Core Inflation moderated to 16.0% (January: 17.9%).

The rise in m/m inflation shows that inflationary pressures remain in the economy, and they may even have intensified. Moreover, whilst food prices are the primary culprit, the increased volatility of petroleum product prices at the start of 2017 are a point of concern. The improvement in foreign exchange market liquidity should assuage pricing pressures here by ensuring more stable product supply but pricing pressure remains titled upwards.

Whilst we anticipate base effects will continue to drag down headline inflation numbers, the surprising rise in m/m inflation should provide pause for the Monetary Policy Committee of the CBN when they meet next week. Our March Inflation forecast has been revised to 16.6% (previous: 16.0%), bringing 2017 average Inflation forecast to 14.6% (previous: 13.8%).