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June 2020 Inflation Review - Annual inflation accelerates to 12.56% y/y

Annual inflation accelerates to 12.56% y/y                                                          

Nigeria’s annual inflation accelerated to 12.56% y/y (Vetiva estimate: 12.44% y/y) in Jun’20 from 12.40% y/y in May, due largely to costlier food items, the National Bureau of Statistics (NBS) reported. Inflation in the country has risen for ten consecutive months, driven by the concerted impact of border closure to check smuggling, trade restrictions to curb the spread of the coronavirus, and the drop in the value of the Naira, on food prices. Since the border closure was instituted in Aug’19, food inflation has gone up by 200bps to 15.18% y/y in Jun’20 while core inflation has since risen by 19bps to 10.21% y/y in Jun’              

Food & non-alcoholic beverages, weaker Naira behind CPI acceleration

Food inflation in the review month edged up to 15.18% y/y from 15.04% y/y in May’20. Although the surge in prices of food & non-alcoholic beverages is primarily responsible for the rise in food inflation (+14bps), the prices of tobacco & alcoholic beverages were also under pressure as they rose by 11bps on an annual basis.

Prices likely to move higher in months ahead

For the whole year, inflation will probably stay higher than we expected sometime earlier, around 12.48% y/y (2019: 11.39% y/y). This is c.8bps higher than our previous expectation in the light of a further adjustment to the Naira exchange rate. The recent move to restrict access to FX for corn import could further intensify supply-side pressure on food prices and by extension, the headline inflation.