As Predicted, Headline Inflation Creeps Up to 18.48%


Thursday, December 15, 2016 2.17 PM/FDC

The Headline inflation rate (YoY) increased to 18.48% in the month of November. This is line with direction of our forecast and within the margin of error. The increase in November is 0.18% higher than the inflation rate of 18.3% in October.

This slower pace of increase in consumer prices reinforces the argument that base year effects are finally tapering. The rate of 18.48% in November is the highest level in 11 years.

A further breakdown of the data showed a deceleration of the month-on month inflation to 0.78% (9.8% when annualized). This suggests a likely convergence in the monthly inflation and headline rate.

NBS November Consumer Price Breakdown
The food and non-food baskets both recorded increases. The food index rose to 17.19% with imported food items, meat, bread and cereals, fish contributing the most to the increase in the food basket.

The core sub-index rose by 0.1% to 18.2% in November due to increases in major divisions such as housing, electricity, water, gas, fuels, lubricants and education. Rural and urban inflation also recorded increases, with the rural and urban indexes rising to 17.1% and 20.07% in November from 19.91% and 16.95%, respectively in October.

Immediate Impact on Markets
The MPC conducted its final meeting for 2016 in November and maintained the status quo on its policy rates and direction. Conditional on price movements in December, the doves within the council are likely to push for an accommodative monetary policy stance in the January meeting, to complement the aggressive fiscal stimulus for 2017. The proposed N7.03trillion naira budget is a 20% increase from 2016’s N6.08trillion. In dollar terms, this is 23% lower than last year’s budget.

Another consideration by the MPC would be the recent increase in the US Fed rate by 25bps to 0.75%. This has the effect of increasing the attractiveness of dollar based instruments to investors, a disadvantage to naira investment instruments especially in the fixed income market.

Right now, the immediate impact of November inflation figures will most likely be its utilization in the negotiations of a minimum wage rate increase that often take place at the end of the year. It is likely that a 30% upward revision may be pushed for next year and as such trade unions and employees would be looking closely at the rate of inflation.

Inflation across Sub-Saharan Africa
Nigeria remains a high inflation environment compared to its regional counterparts. However, there is a universal increase in price levels in the region with a few exceptions. Angola, Kenya, South Africa all recorded increases in consumer prices in November while Ghana and Zambia inflation rates declined; Rwanda remained flat.

The monetary policy committee in these countries maintained status quo on benchmark rates in their November meetings with the exception of Ghana. The monetary policy committees of the respective countries are likely to meet and make key decisions in the first weeks of 2017.

Producers and traders are in for a bleak Christmas as consumers groan due to high prices with no corresponding increase in their real wage earnings. As such consumers are revising their expectations and spending patterns to fit this new reality. Price movement in December is likely to mirror that of November with an increase in prices but at a subdued rate.

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