Inflation Moderates Slightly, Trend Little Changed


Wednesday, November 15, 2017 2:30 PM /Vetiva Research

Registering in line with Consensus estimate of 15.9% year-on-year (y/y), Headline Inflation eased slightly in October (September: 16.0%), tracking above Vetiva estimate of 15.8% y/y. Across the sub-indices, both Food Inflation and Core Inflation came in flat y/y at 20.3% and 12.1% y/y respectively.


The month-on-month (m/m) trend was very similar to September’s, with the All-Items Index, Food index, and Core index increasing by 0.76%, 0.85%, and 0.76% respectively in October (September: 0.78%, 0.87%, 0.80%).


Food prices downtrend after wretched year

Food prices have been a sore point for inflation in 2017, rising 17.7% ytd on the back of multiple supply disruptions in the earlier part of the year. The pressure seems to be waning now – m/m inflation has fallen from a high of 2.54% in May to 0.85% in October. Moreover, there has been no material effect of the flooding in Benue State and its environs on food price trend in recent months.


However, pressure is coming from imported food items as imported food inflation rose for the fourth consecutive month – from 14.8% y/y in September to 15.3% y/y in October. We note that resurgent imported food inflation comes despite relative currency stability in the preceding months, and moderation in global food prices in October – FAO Food Price Index at its lowest value since June.

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Global crude prices, lower truckout pressure energy prices

Automotive Gas Oil (diesel) and Premium Motor Spirit (PMS) prices increased in October, from 184.80 and 144.52 to 201.96 and 145.99 respectively. This rise means that average PMS prices were above the upper band of the regulated price (145.00).


We had earlier noted that the Ministry of Petroleum Resources reported lower truckouts of both products in September (see September Inflation – Annual inflation flat despite hefty monthly decline), and October levels were only marginally higher. Meanwhile, rising global crude oil prices (Brent crude 4% up from September to October) may be pressuring the retail price of imported products.


We are of the view that this uptick in crude prices would likely impact diesel prices more than PMS prices as many PMS marketers continue to eschew product importation due to a high product landing cost and regulated prices.


With petroleum product demand seasonally higher at year-end, steady product supply – perhaps through greater NNPC intervention – would be required to stabilize prices.


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Inflation trend maintained, energy prices are one to watch

Our overall inflation outlook is little changed from the previous month, and we maintain our expectations over the pace of inflation moderation in the near-term. However, we have factored in greater pressure from energy prices at year-end as this would have an outsized effect on transport and production costs.


In all, we raise our inflation forecasts for November and December to 15.8% and 15.6% respectively from 15.7% and 15.4%, translating to average 2017 inflation of 16.6% (Previous: 16.5%).


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