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Monthly Inflation eases on energy prices

​ The Consumer Price Index (CPI) clocked in at 17.6% (Vetiva & Bloomberg estimates: 17.7%), five percentage points higher than the figure for July. This increase (the 10th consecutive month of rising year-on-year inflation) was driven by increases in the two sub-indices. Core inflation rose to 17.2% y/y (July: 16.9%) on the back of increases in Utilities, Transport and Education. Similarly, Food inflation rose to 16.4% y/y (July: 15.8%) as imported food inflation (up 20.7% y/y) continued to drive this sub-index. On a month-on-month basis, headline inflation actually fell to 1.01% from 1.25% in July as both the Core and Food sub-indices recorded a slower pace of monthly price increases. The overall trend was visible geographically as urban and rural inflation rose y/y to 19.3% and 16.1% respectively but decelerated to 0.9% and 1.1% on a m/m basis. We expect the current trend to continue – although y/y inflation will remain high, m/m should trend downwards for the rest of the year. We acknowledge that changes to monetary policy within the period – particularly a decision to cut interest rates – could affect this outlook. An interest rate cut would reduce support for the flexible exchange rate regime and the subsequent pressure on the naira is likely to seep through to energy and food prices, thus pushing inflation up further. As the decision of the Monetary Policy Committee is finely balanced, we adopt a cautious stance here. Therefore, under the assumption that the MPC chooses to keep rates stable, we maintain our September and 2016 average estimates at 17.8% and 15.5% respectively.