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November Inflation Review - Inflation hits 18.5% in penultimate month

• Nigeria’s Consumer Price Index rose 18.5% year-on-year (y/y) in the month of November, ahead of Vetiva forecast (18.3%) but behind Bloomberg Consensus of 18.6%. The Core and Food sub-Indices rose 10 basis points each to 18.2% y/y and 17.2% y/y respectively. Core Inflation is at near-decade high (January 2007: 19.3%). As in previous months, leading the charge were Imported Food and Utilities & Fuels which registered y/y inflation levels of 21.2% and 27.3% respectively. Despite this, Headline Inflation actually slowed on a monthly basis, returning to a 4-month trend temporarily broken in October. This was mainly driven by a moderation in m/m Core Inflation (from 0.75% to 0.71%) as m/m Food Inflation rose slightly for the second consecutive month (from 0.86% to 0.88%).
• Whilst we once again emphasize the severe inflation levels Nigeria has faced this year, we highlight that recent trend strongly suggests a waning in inflationary pressures. Moreover, as the International Monetary Fund (IMF) expects global food commodity prices to moderate in 2017, we can expect slightly more stable imported food prices. On the currency front, naira rigidity is stemming imported inflation at present but the resultant FX scarcity is hampering petroleum product supply. This could eventually feed through to higher prices. That said, a more flexible exchange rate is likely to trigger further currency depreciation which would definitely feed through to higher inflation. Considering this is unlikely to happen this year, we expect December Inflation to moderate slightly to 18.4% (Previous: 18.2%), bringing 2016 average estimate to 15.6% (2015: 9.0%). For 2017, we expect average inflation to fall to 13.3% – according to our baseline scenario which assumes no unusual currency depreciation.