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Inflation Flattens Out in September to 15.98%

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Tuesday, October 17, 2017 5:48 PM / FDC 

As widely anticipated, headline inflation declined marginally to 15.98% in September from 16.01% in August. This 0.03% decrease in year-on-year inflation marks the eight consecutive month of decline in 2017. Food and core inflation moved in opposite directions in the month of September.
 

In line with headline inflation, month-on-month inflation also eased to 0.78% (9.84% annualized) in September from 0.97% (12.28% annualized). The availability of dollars in the FX market saw major manufacturers benefit from the import of raw materials, although this is yet to be fully passed through to the market.

 
Fundamentally, inflation in Nigeria is moderating, but could swing upwards if there is a surge in money supply and wages increase sharply. So far in 2017, M2 has contracted by 11.06% but the velocity of circulation has increased. 

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Breakdown of inflation data
 

Food sub index

Food inflation was higher by 9 bps to 20.32% in September from 20.25% the previous month, making it the highest so far in 2017. On the contrary, month-on-month food inflation eased to 0.87% in September from 1.14%, the lowest during the year. 

The food basket rose in September partly due to logistics cost, as diesel peaked at N195/liter during the month. Imported food inflation also rose to 31% in September from 29.8%, partly due to exchange rate volatility, as the dollar depreciated to N369/$ during the month before appreciating to N365/$.
 

Core sub index

The core sub-index resumed its downward trajectory, declining to 12.10% in September from 12.3% in August. The slowdown in education, housing, water, electricity, gas and other fuels contributed to the marginal decline in core inflation. This is evident in the improvement in power supply, which averaged 3,432.97MW/hr in September, up from 3,352.97MW/hr recorded in August. Month-on-month core inflation marginally declined to 0.80% in September from 0.93%. 

Rural and Urban sub-index
The urban and rural sub indexes moved in opposite directions in September, like the previous month. The urban index increased to 16.18% from 16.13% and rural index declined to 15.81% from 15.91%. This was mainly due to higher logistics costs as earlier explained. 

Sub-Sahara Africa
Ghana has seen a sharp decline its inflation rate from a high of 19.2% in 2016 to 12.2% in September this year. It has also enjoyed a 9% GDP growth (Q2’17). Some have attributed this to an aggressive cut in interest rates (three times this year). Kenya also recorded a decline in inflation to 7.06% in September from 8.04%, whereas inflation remained flat in Angola at 25.18% during the review period.   

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Outlook
The outlook for Nigeria’s headline inflation in the next three months in 2017 is mixed. The impact of the harvest season is expected to kick in fully in October, leading to a moderation in food inflation. On the other hand, November and December would see higher consumer spending due to Christmas shopping. This year’s festive period is expected to be more vibrant than last year, as consumers’ purchasing power has improved. 

The anticipated increase in consumer demand would push up prices. Also there are still logistics constraints and supply shocks such as high diesel prices that would keep consumer prices elevated. However, as the FGN increases its CAPEX and the multiplier effect of this investment is felt in the economy, output is likely to increase to be followed hopefully by lower prices.
 

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