Nigeria: Headline Inflation Remains Unchanged In July

Lagos, Nigeria (Capital Markets in Africa) — The National Bureau of Statistics (NBS) released the Consumer Price Index (CPI) report for July today. Headline Inflation for July – measured Year-on-Year (Y-o-Y) – was estimated at 9.2%, unchanged from the rate reported in the Month of June; thus halting a seven consecutive monthly rise in price level since December 2014. According to the NBS report, inflation rate in July was unchanged due to muted rises in the prices of “Food and Non Alcoholic Beverages”, “Housing, water, Electricity, Gas and Other Fuel” and “Furnishings & Household Equipment Maintenance” divisions amongst others. The food index (farm produce and processed food) rose by 10.0% Y-o-Y in July, also maintaining the same pace for the second consecutive month while core inflation index (All items less farm produce) increased by 8.8% Y-o-Y ,40bps higher than rates recorded in June. However, Month-on-Month (M-o-M) increase in headline inflation softened for the second consecutive month, settling at 0.7% (20bps less than 0.9% recorded in June).

Food Inflation unchanged from June; Rises 10.0% Y-o-Y.
The Food sub-index of the July CPI rose 10.0% Y-o-Y, same as the rate recorded in June. This remains the highest for the year. A slower increase in the prices of Meats, Fish and Fruits, and “Potatoes, Yams and Tubers” groups, impacted the Food Sub-index as a whole, thus, stabilizing food inflation in July. Slower pace of increase was also observed on M-o-M basis, as the Food sub-index decelerated 0.8% M-o-M relative to 1.1% in June. Surprisingly, despite the CBN’s policy which excludes key components in the food basket from items valid for forex transactions  on the 23^rd of June 2015, we observe that all groups which contribute to the Food Sub-index also increased at a slower rate in July with the exception of the Oils & Fats group. The average annual rate of change of the Food Sub-index for the Y-o-Y settled at 9.6% in July 2015 marginally higher than the average annual rate of change of 9.5% in June. However, rates remain at record highs for the year, predictably due to higher imported food prices following the unrelenting pressure on FX rate, stringent conditions of obtaining foreign currency put in place by the CBN and fuel market crises experienced so far in the year.

Core Inflation Sustains Uptrend; up 8.8% Y-o-Y
All items less Farm Produce, which represents Core Inflation for the month of July, hastened to 8.8% Y-o-Y. This was 40bps higher than 8.4% recorded in June. This was the seventh consecutive rate of increase in the sub-index since the beginning of the year. In addition, the Core inflation also rose 0.6% M-o-M, this is however 20bps lower than 0.8% recorded in June. The largest increase in the core inflation index was observed in the Transportation, Education and Miscellaneous Goods & Services divisions while the pace of increase in divisions such as the Communications, Recreation & Culture and Restaurant & Hotels slowed. The average rate of growth in the index settled at 7.2% for the 12-month period ending in July 2015, 20bps higher than the 12-month rate recorded in June 2015.

Implications and Expectations
Contrary to our expectations, Inflation rate steadied at 9.2% following a reduction in the prices of raw Foods and other basic human amenities that muted the impact of higher prices of some processed food items. However, given the macroeconomic conditions within the country, coupled with the Apex Bank’s measures to check speculation on the Naira, resulting into a rigorous process of obtaining Forex for Importation, Nigeria remains an import dependent economy. Hence we do not see the pressure on general prices abating in the interim. Consequently, we expect Inflation rate to sustain marginal increase in the coming month and thus retain our 9.5% projection for December 2015.

Source: Afrinvest (West Africa) Limited Research Team