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June 2021 Inflation - Gravity hits all indexes

In June, the Consumer Price Index (CPI) rose at a faster pace on a month-on-month basis (June’21: 1.06% m/m, May’21: 1.01% m/m). In line with our expectations, the m/m uptick was too weak to support an ascent in headline inflation as pandemic pressures on consumer prices subside. Thus, headline inflation fell to 17.75% y/y (Vetiva: 17.82% y/y) in the month of June, signalling a slowdown in the pace of price increases. While food inflation moderated for the third time, core inflation eased for the first time.  

 

Supply chain restoration subdues food inflation

Slipping to 21.83% y/y (Vetiva: 21.79% y/y), food inflation takes a further step away from all-time highs. While the moderation can be attributed to high base effect and waning domestic food supply shocks, imported food inflation sustained its upward momentum to 17.03% y/y (May’21: 16.97% y/y) in June. In 2020, the surge in food prices allegedly pushed 7 million Nigerians below the poverty line. In the current year, however, prompt intervention in handling multiple food price shocks as well as the reopening of the borders might be paying off as supply chains are restored.

 

Core inflation reaps the benefits of subsidy retention

Core inflation joined the train slipping to 13.09% y/y (Vetiva: 13.36% y/y) in the month of June. This was largely driven by the moderation in the Housing, Water, Electricity, Gas and other fuels (HWGS) index (May’21: 10.11% y/y), which moderated for the second consecutive month. Although transport inflation (May’21: 15.03% y/y) is yet to subside, the retention of fuel subsidies has doused inflationary expectations and facilitated a slowdown in the pace of core price increases.