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June Inflation Review - Inflation falls in June, but warning signs are apparent

Inflation falls in June, but warning signs are apparent

Nigeria’s annual inflation moderated once again, declining from 11.6% in May to 11.2% in June, slightly ahead of Vetiva estimate of 11.1%, and well ahead of Consensus projection of 10.9%. Despite this fall, month-on-month (m/m) inflation rose for a consecutive month, from 1.1% in May to 1.2% in June, the highest figure since June 2017. This trend was replicated across the Food and Core sub-indices, as they declined from 13.4% and 10.7% to 13.0% and 10.4% respectively in y/y terms, but advanced from 1.3% and 1.0% to 1.6% and 1.0% in m/m terms.  

Domestic food prices drive inflation

We note that most inflationary pressure can be traced to food prices—domestic food in particular as m/m imported inflation has been relatively flat for the last six months even as we have seen an uptick in monthly food inflation. The imported category accounts for about a quarter of the overall food basket. Even after accounting for some seasonal effect on food prices, it is likely that resurgent domestic food price pressure is partly as a result of the ongoing violence in the Middle Belt, the major food-producing region in the country. We would see the magnitude of this effect at the onset of the harvest season at the end of Q3’18.

Slight upward revisions to 2018 inflation outlook

June inflation numbers are only slightly ahead of our estimates, and are consistent with our projection of accelerating m/m inflation. As a result, our July forecast is little changed at 11.1% y/y (previous: 11.0% y/y), but we now see annual inflation reversing trend as early as August (previous: September), and average annual inflation printing as high as 12.3% y/y (previous: 12.0% y/y).