Nigeria Economy | |
Nigeria Economy | |
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Thursday, August 20, 2020 / 08:40AM / PFI Capital/Header
Image Credit: Business Post Nigeria
On
Monday the National Bureau of Statistics (NBS) released inflation figures for July-2020
showing headline inflation rate at a 28-month high of 12.82% y/y for the month,
26bps up from 12.56% y/y in June.
On
a month-on-month basis, the headline index rose by 1.25% in July from 1.21% in
June.
Meanwhile,
core inflation rate eased by about 3bps to 10.10% y/y, declining for the first
time since Oct-2019. On a monthly basis, core inflation rate slowed to 0.75%
from 0.86% in June.
Food
inflation index rose by 31bps to 15.48% y/y in July, also a 28-month high. Month-on-month,
food prices rose by 1.52% in July from 1.48% in June.
We
note that inflation rate for July was driven by the pressure in food prices
amid continued border closure and FX pressure in the country. Imported food
index rose 16.35% y/y in July.
We
note reports of herder-farmer clashes in some parts of the country disrupting
farming activities, the addition of maize to the list of items restricted from the
Central Bank of Nigeria (CBN)’s forex sales in July, as well as an increase in
retail price of PMS.
The
NBS reports that average price paid by consumers for premium motor spirit
(petrol) decreased by -0.97% y/y and increased m/m by 11.44% to N143.63 in
Jul-2020 from N128.88 in Jun-2020.
We
note that the farming calendar has also been upended by COVID-19 and shifting
rainfall patterns induced by climate change which has led to a late wet
planting season. Although we learnt that farmers not depending on rained agriculture
are currently harvesting their crops.
In
July also, urban inflation rate printed higher at 13.4% y/y from 13.18% y/y in
June while rural inflation rate jumped to 12.28% y/y from 11.99% y/y in June.
On a monthly basis both rural and urban inflation rates also spiked.
According
to the NBS, in July, headline inflation rate on year-on-year basis was highest
in Bauchi (16.10%), Kogi (15.90%) and Sokoto and Plateau (15.20%), while Lagos
(10.70%), Adamawa (10.60%) and Kwara (10.50%) recorded the slowest rise in
headline y/y inflation rate. On month on month basis however, headline
inflation rate was highest in Kogi (2.85%), Zamfara (2.44%) and Yobe (2.35%),
while Ondo (0.67%), Adamawa (0.63%) and Ogun and Imo (0.62%) recorded the
slowest rise in m/m headline inflation rate.
Implication
The
steady rise in inflation rate, now at its highest in over two years, compares woefully
to the declining rates in the Nigerian fixed income space. Consequently, investors
are contending with deeper negative real-yields.
For
consumers, rising prices pare purchasing power and imposes larger budget constraints.
Also, we see manufacturers facing difficulties in passing on their costs to
their consumers as FX pressures mount.
Outlook
We
see inflation rate continuing its upward trend as food price pressure persists.
Moreso, the earlier stated disruptions to farming calendar that led to a late
wet planting season supports our view for a steady rise in price levels.
However,
we note CBN’s promise to resume dollar sales to Bureau De Change (BDC) operators
when international flights resume on August 29 which could help relieve
pressure in the parallel market but we maintain an unfavorable outlook for the
naira in H2-2020.
Our
expectation is for transportation prices to remain elevated in the near-term as
domestic PMS price tracks conditions in the global oil market.
Previous
Report from PFI Capital Limited
1. Unemployment Heads for New-High - PFI Capital Limited
2. Nigeria's COVID-19 Induced Foreign Trade Decline - PFI
Capital
3.
Inflationary
Pressure Likely to Decelerate in July - PFI Capital Limited
4.
Implications of CBN's
Exchange Rate Unification - PFI Capital Limited
5. A
More than Expected Slowdown in Global Growth - PFI Capital
6. Nigeria's
Double-Whammy: Inflation and Unemployment - PFI Capital
7. Performance
Review of the Economic Recovery and Growth Plan - PFI Capital
8. Implications
of Nigeria's Consumption Expenditure Pattern - PFI Capital Limited
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