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July Inflation Review - Inflation prints in line with expectation, steadies at 16.1%

NIGERIA INFLATION                                                                      

Inflation prints in line with expectation, steadies at 16.1%                                                                         

Nigeria’s inflation remained sticky at 16.1% in July 2017 (June: 16.1%), driven by a 1.2% m/m increase in national prices (June: 1.6%). The reading registered just in line with Vetiva estimate and slightly ahead of Consensus projection of 16.0%. The trends from previous months persisted in July; Food Inflation rose to 20.3% y/y (June: 19.9%) albeit moderating to a 1.5% m/m rise (June: 2.0%) whilst Core Inflation fell from 12.5% y/y and 1.3% m/m to 12.2% y/y and 1.0% m/m respectively in July. There is a notable geographical divide in inflation as prices in the North-West and North-East geopolitical zones are rising at a much quicker pace than in other regions. Moreover, those regions also recorded the highest levels of Food Inflation in July.                                                                             

Food remains the primary source of inflationary pressure this year, and we adopt a conservative view of inflation until a sharp adjustment in current food price trend. But beyond food prices, inflation is deceptively stubborn – stripping out volatile food and energy prices, m/m inflation registered at 1.2% in July, ahead of H1’17 average of 1.1%. Amidst these, we project 16.0% inflation in August and maintain our 2017 average inflation forecast of 16.5% (2016: 15.6%).  We anticipate monetary policy will remain tight in the near-term as the Central Bank of Nigeria continues to prioritize price stability, particularly since the current level of inflation is harmful to economic growth.