Nigeria Economy | |
Nigeria Economy | |
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Thursday,
October 15, 2020 / 04:53 PM / By Nova Merchant Bank / Header Image Credit: Pakistan Gulf Economist
The headline inflation index expanded by 1.48% MoM in
September, above 1.34% MoM in August and below our estimate of 1.60% MoM (our
estimate modelled impact of the increase in electricity tariffs, before the
eventual reversal). The increase still reflects the impact of food shortages,
which more than outweighed the decline in core inflation during the month of
September. The headline index excluding farm produce contracted 11bps to 0.94%
MoM and when further adjusted for energy related cost, the headline index fell
15bps relative to the prior month. 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 13.71%, coming ahead of August
level of 13.22% YoY and below our estimate of 13.82%. Both the food and core
index expanded 66bps and 6bps to 16.7% YoY and 10.58% YoY. Most constituents of
the core index contributed to the rise in the month of August - HWEGF (+16bps
to 8.30% YoY), Transport (+45bps to 11.65% YoY), Health (+49bps to 12.58% YoY),
Communication (+18bps to 9.19% YoY), clothing (+21bps to 11.02% YoY), amongst
others. Relative to the same period in the prior year, the food index is 315bps
higher than the September 2019 level of 13.51% YoY while the core index
increased by 164bps from 8.94% YoY in September 2019. Overlaying the
twelve-month average inflation rate on average,
fixed income yield of 3.43% and the closing rate of the 364-Day NTB at
yesterday's auction of 2.00% translates to a negative real return of 899bps and
1042bps respectively.
The
recent reversal of the planned increase in electricity tariff provided a soft
landing for the inflation number in the month of September. With ongoing
conversation and planned palliatives to limit the impact on the vulnerable, it
is unclear when the higher electricity tariff will be fully implemented.
Irrespective, the rising PMS/Diesel prices and still elevated prices of farm
produce will continue to take a toll on consumer prices in the months ahead.
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