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October 2016 Inflation - CPI in gravity-defying rise to 18.3%

​Year-on-year (y/y) Headline Inflation rose to 18.3% in October, in line with Bloomberg Consensus (Vetiva: 18.1%) and above September’s imprint of 17.9%. In October, Food Inflation registered at 17.1%, compared to 16.6% in September. This Food Inflation reading is the highest since February 2009 (20%). Meanwhile, trending above Food Inflation for the seventh straight month, Core Inflation rose to 18.1% y/y (September: 17.7%). On a month-on-month (m/m) basis, the Headline Index rose 0.83% (September: 0.81%), reversing a four-month trend of declining m/m inflation. Similarly, the Food Index rose 0.86% during the month (September: 0.81%), making it the main driver of monthly inflation.

Whilst persisting high at 21.2% y/y, Imported Food Inflation slowed to 0.86% on a monthly basis (September: 0.93%) as the naira held firm at NGN308/USD in the Interbank foreign exchange market between August/September and September/October following recent rigidity in the exchange rate.

Month-on-month inflation remains stubborn, hovering above seasonal averages (October average of 0.64% in previous 4 years). The driver in September was Core Inflation; in October, it was Food Inflation. That said, noting that higher inflation tends to be accompanied by greater volatility, we do not read into these changes too much. Regardless, this stickiness suggests inflation may not come down as quickly as expected – the Monetary Policy Committee (MPC) of the Central bank of Nigeria (CBN) meets in a week’s time and will surely consider this. Furthermore, the moderation in monthly Imported Food Inflation is likely to be of note, as well as expectations around spending patterns during the yuletide season and likely effects of the harvest season. In view of the recent rigidities in inflation, we revise our November Inflation forecast upward to 18.3% (Previous: 18.1%), bringing 2016 average estimate to 15.6%.