September 2022 Inflation review - Headline inflation rises, albeit softer pressures
The uptrend in inflation persisted in September, reaching 20.77% y/y (Aug'22: 20.52%). The National Bureau of Statistics attributes the uptick in y/y inflation to disruptions in food supply, local currency depreciation, and general increase in the cost of production. Despite the uptick, the outcome was slightly lower than our in-house estimate of 20.84% y/y and Bloomberg Consensus estimate of 21.00%. From our perspective, the lower-than-expected print can be linked to the cooling impact of harvest season and the easing of earlier energy shocks. This is evident in the substantial decline in month-on-month inflation to 1.36% (Aug'22: 1.77% m/m), the lowest m/m outcome since November 2021.
Food inflation continues the harvest ride
On a month-on-month basis, food inflation fell 55bps to 1.43% m/m (Aug'22: 1.98% m/m). This moderation was driven majorly by the harvest season and the absence of new shocks. On a year-on-year basis however, food inflation rose by 22bps to 23.34% y/y in September (Aug’22: 23.12% y/y), as underlying energy shocks keep food prices elevated. The food items that influenced the surge include bread & cereals, potatoes, yams, tubers, oils, and fats. A look at August 2022 food price watch data revealed that the prices of these food items are up by over 30% y/y - bread and cereals (+33.12%), and yams (+32.13%), as well as oils (+34.08%).
Outlook: Ravaging floods pose new risk as energy shock subsides
In October, we see room for a sustained uptick in headline inflation to 21.37% y/y. We note that the rising incidence of flooding across the country poses a threat to our outlook, as both farms and storehouses were devastated by the floods. According to news sources, floods have occurred in 29 out of 36 states of the federation. We expect the impact of the floods to reflect fully in outer months, as we await guidance on the impact of the floods on consumer prices. In the meantime, we maintain our average 2022 inflation forecast of 18.83% y/y (2021: 16.98%).
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