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July Inflation Review - Softer Global Food Prices Guide Inflation Lower In July

Softer global food prices guide inflation lower in July                                                                  

Nigeria’s July 2018 annual inflation came in at 11.1% y/y, in line with Vetiva and Consensus forecasts, and marginally lower than the 11.2% y/y recorded in the preceding month. Inflation also declined month-on-month (m/m) from 1.2% to 1.1%. This trend was apparent across both food and core sub-indices as Food Inflation moderated from 13.0% y/y to 12.8% y/y and 1.6% m/m to 1.4% m/m whilst Core Inflation moderated from 10.4% y/y to 10.2% y/y and 1.0% m/m to 0.8% m/m.                                                                    

The drop in food inflation is a significant positive as it has long since been the problem child. However, most of the moderation was likely driven by a substantial decline in Imported Food Inflation from 1.2% m/m to 0.7% m/m (albeit only marginally down y/y—15.7% to 15.2%). This marks the lowest m/m Imported Food Inflation since October 2015 amid a 4% m/m decline in the FAO Food Price Index.     

"Whilst we cheer another drop in inflation—and the first m/m drop since February—we highlight that improvement was spurred by imported food and energy prices. Thus, the major dynamics of near-term inflation, most notably in the form of food production in the Middle Belt and election spending, remain largely unchanged. Amid this, we anticipate sticky m/m inflation in the near-term and expect price pressure to rise at year-end due to election spending. Putting all of this together, our outlook is unchanged. We forecast a slight uptick in August to 11.2% due to a higher base and project average inflation for 2018 at 12.4%.