Nigeria Economy | |
Nigeria Economy | |
3219 VIEWS | |
![]() |
Tuesday, October 17, 2017 3:58 PM /Vetiva Research
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.
Where
is food price pressure coming from?
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. We had
expected the resulting disruption to agricultural output and transport
activities in that region to weigh on the food basket.
Instead,
food prices actually fell 0.6% on a monthly basis and food inflation moderated
significantly from 16.9% y/y to 13.9% y/y in Benue State. 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.
Imported
Food Inflation has quietly inched up for the third straight month – 14.4% y/y
in August to 14.8% y/y in September – and looking closely at the data,
inflationary pressures here have been rather stable. Average m/m imported food
inflation has hovered around 1.25% in each quarter of 2017, despite marked
improvements in foreign exchange market liquidity and recent appreciation of
the naira at the flexible market segments. From the end of May to the end of
September, the naira appreciated 5% and 6% in the respective parallel and
“Investors & Exporters” windows. Without showing a clear pattern, global
food prices have trended higher so far this year – September FAO Food Price
Index 4.4% higher y/y – which gives partial clarity on the persistence of
imported food inflation.
Inflation
is calculated by looking at corresponding numbers of the Consumer Price Index
(CPI). The CPI is a measure that examines the weighted average of prices of a
basket of consumer goods and services over time, relative to a base year. The
current base year for the Nigerian CPI is 2009. Annual inflation for a month is
computed by comparing the percentage change in the CPI figure for that month in
the two comparison years.
Core
Inflation offers cautious signs of promise
The
decline in the core sub-index can be mainly attributed to waning pricing
pressures across clothing, household furnishing, health, and transport. Despite
this broad-based decline, underlying m/m inflation (excl. food and energy
prices) tracked slightly above the headline number (0.82% vs. 0.78%) for a
consecutive month, pointing to stubborn inflationary pressure beyond volatile
food and energy prices.
In
the energy space, Household Kerosene (HHK) prices rose sharply from ₦226 to ₦264 in September but
still remained well off 2017 average of ₦304. We note that the Ministry of Petroleum
Resources reported its lowest Dual-Purpose Kerosene (DPK) daily truckout for
the year (1.32 million litres) in September, down from 1.91 million litres in
August, which may have contributed to this price uptick.
In
contrast, Premium Motor Spirit (PMS) prices held steady just below the ₦145 upper bound of the
pricing band for yet another month as supply from the Nigerian National Petroleum
Corporation (NNPC) continued to satiate the market.
Finally,
diesel and LPFO prices dipped 6% and 3% respectively in September. Looking at
data from the Ministry, PMS and diesel loadings also dipped to their lowest
values in 2017 last month, which could precipitate a tighter market in the
near-term. Nonetheless, we expect strategic NNPC interventions to ensure
product supply and stabilize market prices for the rest of the year.
Lower
base effects to colour Q4 inflation
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%).
Related News
1. CPI Drops to 15.98% in Sept 2017, 0.03% Lower Than 16.01%
August Rate
2. Evaluating The Adequacy of Nigeria’s External Reserves
Level
3. The Need to Invest in Nigeria's Infrastructure
4. Lower Current-Account Surplus due to MCP
5. FBN Merchant Bank Partners with NESG at the 23rd Nigerian
Economic Summit
6. Credit Allocation to Favour the Few
7. Monthly Economic and Financial Market Outlook: Time for
Portfolio Realignment
8. Big Data Economy: Driving the Economy through Data
Science
9. FG setting up focused labs to drive public, private
sector partnership, Udoma tells Senate
10. Headline Inflation to Taper Off At 15.99% in September
11. FirstBank Collaborates with NESG to host the 23rd
Economic Summit in Abuja
12. #NES23 opens with emphasis on PPP and Nigeria’s economic
growth
13. How Capitalism and Free Market Economics Can Drive The Nigerian Project Forward