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NIGERIA SEPTEMBER ECONOMIC REPORT - Little To Cheer As Election Season Looms

Little to cheer as election season looms                                                               

September was an active month on the policy and political front. Even with Nigeria’s inflation reversing trend—breaking an 18-month disinflation streak by rising to 11.2% y/y—the Monetary Policy Committee opted to hold interest rates. This was a pivotal decision in the run-up to election which would likely induce demand-push inflation. Meanwhile, Kemi Adeosun resigned as Minister of Finance after government investigations confirmed that her NYSC certificate was a counterfeit, and she was replaced by former Minister of State for Budget and Planning Zainab Ahmed. Furthermore, political party primary season kicked off with most parties electing their preferred candidates for presidential and gubernatorial elections in late-September and early-October.                                                                            

After falling for eighteen straight months, Nigeria’s inflation reversed trend, rising 0.1 percentage points to 11.2% y/y in August as persistent food price pressure finally told on a weaker base. The near-term outlook is bearish, with expected fiscal injections likely to put further upward pressure on inflation. Despite this, the Monetary Policy Committee (MPC) opted to maintain the status quo at its September meeting, recognising that tightening would do little to stem food inflation and may harm still-weak economic growth. Nevertheless, the committee showed a strong lean towards tightening. Three of ten members voted to increase the monetary policy rate whilst of the seven that opted to hold, three pushed for a 250bps hike in the cash reserve ratio. Barring a material change in price or exchange rate dynamics, we do not anticipate any monetary policy change between now and the February elections as the relevant uptick in inflation and capital outflows have been factored into the MPC decision to hold.                                                                            

What to look out for in October…                                                                           

• OPEC releases its monthly oil market review on the 11th of October. It will show the scale of recent production declines in Iran and Venezuela.
• The National Bureau of Statistics releases the Consumer Price Index (Inflation) data for September on the 16th of October. It will give a preliminary indication of the pace of increase in inflation after its recent reversal.
• A major European Summit will be held on the 17th and 18th of October, though it is unlikely that the UK would have a clear revised proposal for the EU countries to vote on.

• The first reading of United States Q3’18 GDP data will be released on the 26th of October. Projections of U.S. growth for 2018 have been unscathed from recent downgrades and the economy expanded impressively in Q2’18.