Nigeria Economy | |
Nigeria Economy | |
654 VIEWS | |
![]() | |
PROSHARE | |
PROSHARE |
Tuesday, November 17, 2020 / 07:49 AM /
by NOVA Merchant Bank / Header Image Credit: All Africa
The headline inflation index expanded by 1.54% MoM in
October, above 1.47% MoM in September and in line with our estimate of 1.53%
MoM. While the pressure from food prices continued to intensify, the core index
delivered a jump in October MoM from the prior month. The 'All Items less Farm
Produce' (core index) expanded 30bps to 1.25% MoM, dominated by increases in
Communication, HWEGF, Transportation, Clothing & Footwear, and Health
sub-index. Still reflecting the impact of shortages in farm produce, food index
advanced 9bps to 1.96% MoM. The imported food sub-index advanced after a
broadly flat movement by 5bps to 1.34% MoM. The headline index excluding farm
produce and energy advanced 34bps to 1.32% MoM. According to FEWSNET, the
rising prices of food (emanating from farm produce) is largely a result of
exacerbated flooding in localized areas of the Northeast and atypically high
staple food prices during the extended lean season from April/May through the
end of September.
Reflecting the MoM jump, the headline
inflation expanded by 14.23%, coming ahead of September level of 13.71% YoY and
in line with our estimate of 14.22%. Both the food and core index expanded
74bps and 56bps to 17.4% YoY and 11.15% YoY respectively. Most constituents of
the core index contributed to the rise in the month of August, with the
imported food sub-index jumped 8bps to 16.515% YoY. Relative to the same period
in the prior year, the food index is 331bps higher than the October 2019 level
of 14.07% YoY while the core index increased by 227bps from 8.98% YoY in October 2019. Overlaying the twelve-month average inflation
rate of 12.64% on average fixed income yield of 1.86% and the closing rate of
the 364-Day NTB at yesterday's auction of 0.300% translates to a negative real
return of 1078bps and 1234bps respectively.
Beyond October, the now implemented upward adjustment
in electricity prices effective November and rising PMS/diesel prices due to
increasing global crude oil prices will add more pressure to the inflationary
trend over the next two months. On electricity tariff, we expect the impact to
reverberate across industrial and consumer prices, with the major shock area
being the core index which incorporates Housing Water, Electricity, Gas and
Other Fuel (HWEGF). The combined impact of increases in electricity tariff,
rising diesel/PMS prices and lower than average harvest season will define new
levels for inflation in the next two months. Adjusting our model for the
above-mentioned pressures, we arrived at a base average inflation rate of 13.2%
in 2020, compared to average of 11.4% in 2019.
Related News