Headline inflation down to 14.33% in February


Thursday, March 15, 2018 /8:55 AM /FDC

Headline inflation in February slowed to 14.33% from 15.13% in January, a decline of 0.8%. Inflation remained in line with analysts’ consensus and has now declined for the 13th consecutive month. The sustained downward trajectory in headline inflation can be attributed to the impact of reduced money supply on consumer prices, forex availability, a stable exchange rate and a decline in average fuel prices (in spite of the lingering fuel scarcity). Additionally, the improvement in power generation to 3,937MWh/h in February from 3,690MWh/h in January supported the decline in cost push inflation.

Month-on-Month inflation down
Month-on-month (MoM) inflation recorded a marginal decline to 0.79% (9.90% annualized) from 0.80% (10.03% annualized) in January. This is partly because the January effect extended to the month of February as FBN PMI remained flat at 54.7 during the period. 

However, the money supply proxy (banks average opening long position) shrank by 38.63% to N173.78bn in February from N283.15bn in January. Additionally, the decline in average diesel prices from N213.82/ltr in January to N209.89/ltr in February (currently at N195/ltr in Lagos) eased logistics costs and inflation.

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Food and Core Inflation down
Food inflation in February stood at 17.59%, a decline of 1.33% from 18.92% in January. This was supported by decreases in the price of food & alcoholic beverages, and imported food commodities. Core inflation, inflation less seasonality, also declined by 0.4% from 12.10% in January to 11.7% in February. Household items, maintenance and utilities recorded a substantial decline in February. However, the highest increases in the core index were recorded in vehicle spare parts, maintenance and repair of personal transport equipment. 

Rural and Urban sub-index
Like other inflation components, the urban and rural sub-indexes maintained a downward trajectory. The urban index declined to 14.76% in February from 15.56% in January. The rural index also slid to 13.96% in February from 14.76% in January. The urban index declined at a steeper rate compared to the rural index due to the improvement in logistics, and we might possibly be heading towards a convergence. 

State by State breakdown
According to the NBS, the states that recorded the lowest inflation rates were Delta (11.74%), Edo (12.33%) and Kogi (12.74%). These states coincidentally have a backlog of salary arrears which could be the likely driver for the slow pace of inflation. 

On the other hand, Kebbi remained the state with the highest rate of inflation at 18.60%, followed by Bauchi at 17.68%, a trend similar to inflation in January. Other states with high inflation rates are Yobe and Nasarawa.

These states remain vulnerable to incessant attacks by herdsmen which have destroyed farmlands and reduced the supply of food items.

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Sub-Saharan Africa
Except for Ghana, inflation in most countries in SSA has been on a downward trajectory in 2018. The decline is supported by a slowdown in food, clothing and transportation prices. High global crude oil prices continue to adversely affect logistics and utility costs in these countries. 

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Policy impact and outlook
Since the Senate has now agreed to proceed with the confirmation hearings of the nominees of the MPC, it is now more than likely that the MPC will meet next week. Based on the strength of lower inflation numbers and also to serve as an impetus for growth, the chances of a shift in stance from neutral to accommodative is more probable than earlier envisaged 

The CBN governor in late 2017 suggested that a move towards an accommodative stance was likely in Q1’18.

However, the commencement of the planting season and approaching Easter celebrations could reverse the downward trajectory of headline inflation. Likewise, if the security unrest in the middle belt and the North Central part of the country continues, it would affect the supply of agricultural products which would affect the food basket in the coming months.

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