Nigeria Economy | |
Nigeria Economy | |
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Tuesday, October 15, 2019 / 06:13 PM
/ By CardinalStone Research / Header Image Credit: Vanguard
Inflation surges to 11.24% YoY
According to the National Bureau of Statistics
(NBS), headline inflation rose for the first time in three months in September,
advancing by 22bps to 11.24% YoY to beat Bloomberg consensus estimate of 11.00%
YoY and our 11.10% YoY forecast. The price pressure was largely driven by an
acceleration in food inflation (+34bps to 13.51% YoY in September), which
constitutes over 50.0% of the consumer price index. We also note that core
inflation rose (+27 bps to 8.94% YoY) for the first time this year in September,
to further stoke overall inflationary pressures.
We attribute food inflationary pressures to the
impact of border closures in August 2019. In our view, the closure of several
land borders, including the bustling Seme border, to combat food smuggling, led
to reduced supply of imported food and increased demand for local food produce.
Specifically, the prices of popular food imports, such as rice and frozen
foods, rose significantly during the review month, according to several market
watchers. The prices of domestic food produce such as garri, yam, cassava and
local rice also increased materially in September on higher demand pressures.
Although we noted the risks to food inflation in prior communication (see our
report titled "Border closures may only offer temporary subsidy reprieve"), we
had expected the commencement of main harvest season to provide some offsetting
impact.
Elsewhere, the first increase in core inflation in
2019 coincided with increases in Housing, Water, Electricity, Gas and Other Fuels
(HWEGF); Transport; and the Miscellaneous Goods and Services sub-indices. While
we await the release the energy inflation figures, we note the reported
increases in the price of PMS across some key border towns following the
deployment of security operatives to clamp down on smuggling.
Figure 1: Rise in core inflationary
sub-indices
Border closures could alter inflation trajectory
The
impact of border closures on food inflation materially changes our expectation
for headline inflation for the rest of the year. We envisage a sustained uptick
in inflation in the coming months, with the borders likely to remain shut
pending a compromise between Nigeria and its neighbours. Moreover, we expect
further price pressure for staple foods from increased demand due to Christmas
festivities. Specifically, the price of rice in particular is expected to rise
given the nation's supply gap of c.2.7 million tonnes. Beyond 2019, upside
risks remain on the horizon. The scheduled increase in electricity tariffs
beginning in January 2020, the proposed increase in VAT to 7.5% and the
implementation of the minimum wage pose material upside risks for 2020. We thus
expect the Central Bank of Nigeria to maintain its tight monetary stance in the
face these risks and lower near-term oil price forecasts.
1.
Border Closure Hitting The
Price of Rice - CSL
Research, October 04, 2019
2.
Border Closures
May Only Offer Temporary Subsidy Reprieve - CardinalStone Research, October 11, 2019
3.
Effects of Closing The SEME
Border - Coronation
Research, October 15, 2019
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