Inflationary Pressure Likely to Decelerate in July - PFI Capital Limited


Monday, July 20, 2020 / 09:40AM / PFI Capital/Header Image Credit: The Hindu

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The NBS June 2020 inflation rate report shows that headline inflation rate rose for the 10th consecutive month to 12.56%. This is 16bps higher than 12.40% recorded in May'20 and 134bps ahead of the 11.22% recorded in Jun'19. On M-o-M, the headline inflation rate increased by 4bps to 1.21% from 1.17% recorded in May'20. This is the slowest M-o-M increase since Feb'20. The rural inflation rate was up by 3bps to 1.19% M-o-M while the urban headline index rose by 5bps to 1.23% MoM.


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Source: NBS, PFI Capital Research


We note that the increase was recorded in all the 12 COICOP divisions that make up the index, with prices of bread and cereals, potatoes, yam and other tubers, fruits, oils and fats, meet, vegetables and fish recording the highest increases as components of the food index. When compared to 15.04% recorded in May'20, the food inflation rate accelerated by 14bps to 15.18% YoY but by 6bps MoM to 1.48%.


Core inflation, on the other hand, was up marginally by 1bps to 10.13% Y-o-Y and was down by 2bps M-o-M when compared to the 0.88% recorded in May'20. The highest increases were recorded in the prices of hospital services, medical products and services, as well as transportation products and services.


On a state-by-state basis, headline inflation was highest in Bauchi, Sokoto and Ebonyi at 15.02%, 14.88% and 14.6% respectively. Cross River (10.95%), Lagos (10.78%) and Kwara State (10.03%) however recorded the slowest rise in the headline inflation YoY.       


We further note that food inflation in June'20 was highest in Sokoto state as it recorded headline inflation of 17.88% followed by Plateau state which recorded 17.04% inflation rate YoY and Abuja with YoY headline inflation rate of 16.82%.

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Source: NBS, PFI Capital Research


On a quarterly basis, we highlight that headline inflation in Q2'20 is the highest of the six (6) quarters reviewed and we note disruptions to supply chains caused by the global pandemic was a major factor for cost push inflation over the period.


We think the waning purchasing power of consumers brought about by a decrease in income would reduce inflationary pressures in coming months. This is to say that the rate of increase in the headline inflation rate will slow down from July through to October 2020 before seasonality factors take effect in November and December 2020.


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Previous Report from PFI Capital Limited

1.      Implications of CBN's Exchange Rate Unification - PFI Capital Limited

2.     A More than Expected Slowdown in Global Growth - PFI Capital

3.     Nigeria's Double-Whammy: Inflation and Unemployment - PFI Capital

4.     Performance Review of the Economic Recovery and Growth Plan - PFI Capital

5.     Implications of Nigeria's Consumption Expenditure Pattern - PFI Capital Limited


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