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Nigeria Inflation - Pressure cocktail sends inflation to a 10-month high

Data from the National Bureau of Statistics (NBS) confirmed that headline inflation rose at a faster pace for the fourth consecutive month in May to 17.71% y/y (Vetiva: 17.44% y/y). We attribute this uptick in inflation to fuel scarcity, caused by low loadouts at fuel depots during the long holiday season. This led to higher energy prices in Abuja and some northern states.

Supply-side shocks nudge food inflation higher Nigeria is not immune from the global surge in food prices, as bread and ce-reals were the top drivers of food inflation. The war in Ukraine and Russia directly affects the prices of wheat and cereals. Thus, imported food inflation has accelerated to a 62-month high of 17.75% y/y. The broader national food inflation figure rose to a 6-month high of 19.50% y/y in May’22 (Apr'22: 18.37% y/y). The surge in food inflation has been ob-served across all edible baskets – farm produce (+237bps), non-alcoholic beverages (+210bps), processed food (+100bps), and alcoholic beverages (+74bps). Surprisingly, the pressures on these baskets are not as severe as it was a year earlier.

Outlook: Energy crisis could stoke inflation further We have substantial evidence that shows that the current uptrend is majorly driven by high energy prices. In the ongoing month, there are reports of re-surging fuel queues in some northern states. This could keep inflation at elevated levels. Thus, we see headline inflation rising to 18.38% y/y in June’22. We raise our FY’22 average inflation estimate to 17.5% y/y (2021: 16.98% y/y). Border reopening can still be a game-changer for food inflation in H2’22. We understand that trade activities at the border have reduced drastically, espe-cially as custom procedures have been implemented to eliminate informali-ty. As we still see shocks from high energy prices stoking food prices, we expect food inflation to rise to 20.4% y/y in June.