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September Inflation Review - Annual inflation flat despite hefty monthly decline

Annual inflation flat despite hefty monthly decline                                                                      

Amidst a slightly weaker base from September 2016, September inflation came in flat at 16.0% year-on-year (y/y) – Vetiva: 16.1% y/y, Consensus: 16.0% y/y – despite the Consumer Price Index (CPI) recording the lowest month-on-month (m/m) increase since November 2016. Headline m/m inflation moderated from 1.0% in August to 0.8% in September, assisted by weaker food price pressure during the month. Specifically, m/m Food inflation registered below 1% (0.9%) for the first time in 2017, but weaker base effects from prior year kept Food Inflation sticky at 20.3% y/y. In line with 2017 trend, non-food prices fared better in September as Core Inflation moderated in both y/y (12.3% to 12.1%) and m/m (0.9% to 0.8%) terms.                                                                            

Although food prices in Nigeria rose for the 28th consecutive month, markedly lower m/m inflation in September comes as a mild surprise considering the severe flooding that impacted Benue State and surrounding environs at the end of August.  Whilst it is too soon to draw conclusions, especially as we anticipate a lagged effect of the weather disruption, flooding seems to have had a negligible aggregate impact on food supply in the interim.                                                                       

There are promising signs that inflationary pressures are abating, particularly on food prices. Meanwhile, pass-through from global food prices should be tempered by currency stability. We anticipate m/m inflation to moderate further in Q4’17, though this would be met by a weaker base from Q4’16 (average m/m inflation: 0.9%), making headline annual inflation sticky. Nonetheless, amidst easing food prices and the impending harvest season, we are cautiously optimistic and lower our inflation forecast for the rest of the year – we estimate 15.8% y/y inflation for October and 2017 average annual inflation of 16.5% (previous: 16.6%).