Nigeria Economy | |
Nigeria Economy | |
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Tuesday, July 16
2019 10:10 AM / FDC / Header Image Credit: NBS/EcoGraphics
Contrary to expectations, the headline inflation for the month of June declined more than anticipated by 0.18% to 11.22%, reversing the rising trend that commenced in Q2. Just like headline inflation, all other subindices declined.
The deceleration in the inflation numbers is partly due to a reduction in aggregate demand and a fall in disposable income. This was compounded by further tightening in liquidity due to the CBN’s aggressive mop-up through open market operations and higher forex sales. Total forex sold was up 27.37% to $1.21bn (N432bn), 1.6% of broad money supply (M2).
In the food basket, the commodities that had the highest price increases were: bread, cereals, meat, potatoes, yam and other tubers. In the non-food basket, cleaning, repair and hire of clothing, repair and hire of footwear and repair of household appliances recorded the highest price increases.
The states with the lowest inflation rate are mainly the oil producing states – Bayelsa and Delta. Reverse was the case in the violence prone states – Bauchi, Kebbi and Kaduna.
Data Breakdown
Month-on-month Inflation fell by 0.04% to
1.07%
The month-on-month index slowed to 1.07%
(13.69% annualized) in June from 1.11% (14.23% annualized) in the month of May.
The CBN’s aggressive liquidity mop-up through forex intervention and OMO
activities helped to taper inflationary pressures. Total forex intervention
rose by 27.37% to $1.21bn (N432bn), 1.6% of money supply and approximately 65%
of FAAC.
Food Inflation Declined by 0.23% to 13.56%
After increasing for 3 consecutive months,
the food sub-index declined in June, falling by 0.23% to 13.56%. The monthly
food sub-index also decreased to 1.36% from 1.41% in the month of May. This
reflects the commencement of early harvest, resulting in a boost in output.
Nevertheless, the prices of commodities such as bread and cereals, meat, oils
and fats, potatoes, yam and other tubers, fish, vegetables and fruits
increased.
Core Inflation Down to 8.8%
The year-on-year core inflation index
(inflation less seasonalities) fell to 8.8% in June from 9.0% in the previous
month, benefiting from a relatively stable exchange rate. However, the monthly
core sub-index increased by 0.10% to 0.85%. The items that recorded the highest
price increases were: medical and hospital services, cleaning, repair and hire
of clothing, footwear and household appliances. Core inflation is now 3.11%
below the 364-day primary market T/bills rate of 11.91%. This is indicative of
a positive rate of return on investment.
Rural & Urban Indices
The rural and urban inflation rate slowed
in the month of June. On an annual basis, both indices fell by 0.20% and 0.15%
to 10.87% and 11.61% respectively. On a month-on-month basis, they both
declined by 0.02% and 0.05% to 1.05% and 1.10% respectively. This points to
higher agric output in coming months.
State by State Analysis - Inflation lowest
mainly in the oil producing states
Inflation rate was lowest mainly in the
oil producing states – Bayelsa (8.56%), Kwara (9.01%) and Delta (9.46%). The
states with the highest inflation rates were Bauchi (15.4%), Kebbi (14.73%) and
Kaduna (13.91%).
Sub-Saharan Africa (SSA) – 3 Reds, 3
Greens
Inflation showed a mixed trend across
Sub-Saharan Africa (SSA). Of the 5 countries that have released their June
inflation data, 3 recorded declines while 2 recorded increases. South Africa,
which is yet to release its June inflation numbers, posted an increase in the
month of May. Most of the countries left their monetary policy rates unchanged
except Angola.
Outlook
The moderation in the inflation numbers
will be cheery news to the doves in the monetary policy committee at their
meeting next week. However, given the tepid economic growth, we expect the
committee to continue with its wait and see approach on monetary policy
parameters and continue to use OMO activities and forex interventions to
control liquidity in the system.
The exchange rate used in converting
customs duty was adjusted to N326/$ from N305/$. This would increase prices of
imported goods, thus pushing up imported inflation in coming months.
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