Another welcome slowdown in month-on-month inflation


Tuesday, September 20, 2016 9:52 AM / FBNCapital Research

The latest inflation report from the NBS shows the seventh successive acceleration in the headline rate, to 17.6% y/y in August from 17.1% the previous month. Our own contribution to wire service polls of analysts was a rate of 17.4% y/y. There was an increase in the core measure to 17.2% y/y from 16.9%.

The NBS commentary singled out the rate of 25.9% y/y for housing, water, electricity, gas and other fuels. Food price inflation in August was 16.4% y/y, compared with 15.8%. Seasonal, post-harvest effects should prove positive in the months ahead.

The m/m increase in inflation has now slowed for three successive months, to 1.0% and 0.9% for the headline and core measures respectively. For the urban and rural indices, the rates have slowed to 0.9% and 1.1%.

We therefore add squeezed private demand to fx sourcing issues as the drivers behind the inflation data. Naira depreciation has slowed since the large adjustment in June. The FGN’s expansionary fiscal stance should become another driver in the months ahead.

The monetary policy committee will doubtless note the easing of inflationary pressures today. That said, we think it will be tempted to hike in an effort to attract offshore fixed-income players and create a fully-functioning fx market.

Mid-curve FGN bond yields are now about 250bps negative in real terms.

Our more observant readers will have noted that the headline rate y/y in August was higher than that of its constituent parts (non-food and food). We therefore have to share the NBS health warning that processed foodstuffs are elements of both parts. The price of imported food, which has a 13.2% weighting in the index, increased by 20.7% y/y in August.

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