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October 2021 Inflation review - High base effect overwhelms pricing pressure

NIGERIA INFLATION
High base effect overwhelms pricing pressure
As the purchasing power of the Naira is ripped off by rising consumer prices, base effects continue to subdue market realities. Thus, headline inflation fell below consensus’ expectation to 15.99% y/y (Vetiva: 16.21% y/y) in October, 64bps below September’s reading. On a month-on-month basis, headline inflation rose by 0.98% m/m, representing the third slowest m/m uptick since Q1’20.
Stable FX environment supports core inflation In the month of assessment, core inflation declined by 50bps to 13.24% (Sept’21: 13.74% y/y). While we observed mixed signals in core inflation over the past six months, we believe increased FX liquidity and constrained consumer wallets contributed to the descent in core inflation.
Disinflation supports neutral policy stance Nigeria has been able to subdue inflationary pressures in H2’21, largely due to its welfarist stance on fuel subsidies. While the deadline for subsidy removal has been shifted to the coming year, we do not see any risk that could trigger a build-up in inflation this year. That said, we expect a further descent in headline inflation to 15.24% y/y in the month of November. On average, headline inflation could average 16.9% y/y in 2021 (2020: 13.21% y/y).