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January 2020 Inflation Review - Base effect pushes Jan'20 retail inflation to 12.13% y/y

Base effect pushes Jan’20 retail inflation to 12.13% y/y                                                

Data from the NBS showed that consumer prices in Nigeria rose faster in Jan’20 compared to Dec’19 and Jan’19. Annual inflation rate - based on consumer prices - accelerated to 12.13% y/y (Vetiva estimate: 12.35%) in Jan’20, quicker than 11.98% y/y in Dec’19 and 11.37% y/y, a year ago.         

 

Base effect intensifies pressure on consumer prices

While consumers seemed to be frugal in January - based on the results of the PMI surveys conducted by the CBN in January – the rise in inflation was slightly steeper (+15bps) compared to the 13bps rise recorded in Dec’19. This was due to the unfavourable base effects from the corresponding period in 2019, combined with the supply-side inflationary pressure that was induced by the continued closure of the land borders.

 

All the inflation sub-components recorded faster price growth in January compared to Dec’19, led by the health sub-index whose annual rate of increase was up by 19bps in Jan’20 relative to its level in Dec’19. This was closely followed by the food & non-alcoholic beverages sub-index whose inflation rate in Jan’20 was higher by 18bps compared to Dec’19. The food price index continues to reflect the impact of the border closure as food prices are up by 168bps to date (14.85%), from a record low of 13.2% y/y in August.                  

                       

Balance of risks remains on the upside

We expect inflationary pressures to be more intense in February, following the implementation of the new VAT rate whose burden we believe will be borne mostly by consumers. Consequently, we expect the headline inflation to inch higher by 21bps to 12.34% y/y and by 5bps to 0.92% m/m. Our expectation of a steeper rise in inflation in February is supported by the possible combination of unfavourable base effect and the pass-through of the VAT upward review to consumer prices.