Another poor inflation report; sharp increases recorded for both core and food measures

Proshare

Tuesday, May 17, 2016 9:44AM/FBNQuest Research

The latest shocking inflation report from the NBS shows a pick-up in the headline rate to 13.7% y/y in April from 12.8% the previous month. This was our expectation in analysts’ polls for the wire services.

There were sharp increases for both the core and food measures to 13.4% y/y and 13.2% y/y from 12.2% and 12.7% respectively. The shortage of fx at the official rate continues to bite. CBN sales of about US$200m per week are inadequate although fx demand is easing in line with household spending.

This first point is made by the latest surge in imported food inflation to 16.4% y/y in April from 15.2%.

Transport inflation of 13.4% y/y is a little below the headline, and the m/m increase slowed in April to 1.8%. Across Nigeria only a small minority of consumers could access the official retail price at the petrol pump. We should not overstate the inflationary impact of the new pricing system.



The MPC hiked in March so that its new policy rate of 12.00% would remain positive in real terms. On the same basis and in line with remarks made by the governor at the IMF/World Bank spring meetings in Washington last month, it should hike again next week.

If it wishes to become proactive and if the CBN’s in-house forecasts guide it in that direction, it could hike to a new rate above 14.00%.

 We would expect some respite in the May report from the acceleration in y/y headline inflation, given positive base effects.

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