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September Inflation Review - Good news as inflation prints well below expectation

Good news as inflation prints well below expectation                                                                  

Nigeria’s annual inflation rose from 11.2% in August to 11.3% in September, though still registering below both Vetiva and Consensus estimates (11.5%) as month-on-month (m/m) inflation printed at just 0.8% (August: 1.0%), the lowest since April 2018. This month-on-month figure is comparable to the period between September 2017 and April 2018 when Nigeria experienced rapid disinflation (from 16.0% y/y to 12.5% y/y) amid average m/m inflation of 0.8%. September m/m inflation also betters recent trend—average m/m inflation of 1.1% in the prior four months—and eases concerns over Q4’18 inflation.   

Tracking the headline trend, Food Inflation rose from 13.2% y/y to 13.3% y/y and fell from 1.4% m/m to 1.0% m/m. Meanwhile, Core Inflation declined in both annual (10.0% y/y to 9.8% y/y) and monthly (0.8% m/m to 0.6% m/m) terms. In fact, m/m core inflation of 0.6% is the lowest in 2018.                               

Nigeria’s price outlook has improved on the back of September’s figures. Recent food price pressure may be partially eased by the harvest season, and we do not expect any change to the minimum wage before the year runs out. That leaves anticipated fiscal injections as the main driver of inflation. Considering this, we note recent reports that the government has released ₦460 billion for capital projects outlined in the 2018 Budget. Furthermore, electioneering activities can be expected to kick off soon as the final party primaries have been concluded. Also pushed by a weakening base, we still anticipate inflation to keep rising, albeit at a slower pace than before. Our October forecast has been revised to 11.3% y/y (previous: 11.8% y/y), and our average inflation forecast has been revised to 12.2% (previous: 12.4%, IMF: 12.4%).