Muted fx passthrough to inflation


Wednesday, March 18, 2015 9:14 AM / FBN Capital Research


Headline inflation in February picked up from 8.2% to 8.4% y/y. Our contribution to analysts’ polls was 8.8% y/y. The core measure increased from 6.8% to 7.0% y/y, and food price inflation from 9.2% to 9.4% y/y.


We had expected that importers would pass a greater proportion of their higher costs onto consumers. The passthrough has been muted in the context of the naira depreciation on the interbank fx market.


The NBS commentary notes that the highest increase among components of the core measure was the 8.6% y/y rise for restaurants and hotels: this tallies with our view on the equities side that the environment is more challenging for listed non-food than for food names within our coverage.


The CBN/MPC have not set an inflation objective for 2015. This outturn remains within the range for last year of between 6% and 9% y/y.

The CBN’s most recent forecasts have the headline rate at 8.8% y/y in March and 9.4% in June.

We have added imported food inflation to our chart. Its rate of 8.8% y/y was the highest since February 2013. This probably reflects a combination of exchange rate movements and fx price increases for some foodstuffs.

The MPC meets next Monday and Tuesday. A change of stance is unlikely since the committee is reviewing the impact of its earlier tightening steps

In other circumstances, investors would be drawn to real yields on FGN bonds of about 8% across the curve. However, the offshore community remains on the sidelines due to liquidity constraints and oil price concerns while the domestic institutions tend to operate on different investment principles.

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