Uncertainty Over PMS Price - A Clear Indication Inflation Concerns Could Linger


Wednesday, February 17, 2021 / 8:15 AM / by CardinalStone Research / Header Image Credit: Banda Equals

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In line with our forecast, Nigeria's headline inflation accelerated 71bps to 16.47% YoY in January 2021. Notably, food inflation surged to 20.57% YoY (highest reading in over 12 years), even though the re-opening of land borders may have contributed to temperance in month-on-month reading. Core inflation also accelerated 48bps from December 2020 to 11.85% YoY in January 2021. On a month-on-month basis, headline inflation rose by 1.49% in the review month (compared to 1.61% YoY in December) on relatively tempered food reading of 1.83% (vs 2.05% in the prior month). The moderation in food inflation may have simultaneously offset the 1.26% (1.10% previously) month-on-month core inflation in the review month.


PMS price could be a critical inflation driver in 2021

Our 2021 outlook report highlighted the tripod of higher electricity tariff, potential naira devaluation, and PMS price increases as the biggest threats to inflation in the current year. The duo of higher electricity tariff and currency pressures (especially at the parallel markets) are already beginning to take a toll on domestic prices, in our view. However, a material increase in PMS prices could take inflation numbers to more worrying territories. To our minds, the decision to raise fuel prices may be a matter of "when" and not "if" as crude oil prices continue the ascendency observed since the turn of the year. The rise in crude oil prices from c.$40 in November 2020 to over $60/bbl in February 2021 has had a knock-on effect on landing costs. Specifically, landing costs have risen from N123.89/litre in October 2020 to c.N151.70 in February 2021. The change in other direct cost elements also suggests that domestic pump prices should be c.N205/litre, a far cry from the current N162.50/litre that suggests an inadvertent return to subsidies.


Pricing template suggests that PMS could be worth over N200/litre upon adjustments.


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