Wednesday, April 13, 2016 8:55AM /FBNQuest
Another depressing inflation report from the NBS shows a pick-up in the headline rate to 12.8% y/y in March from 11.4% the previous month. There were steep increases for both the core and food measures to 12.2% y/y and 12.7% y/y from 11.0% and 11.3% respectively.
The observant reader will wonder how headline and food price inflation were similar in March, and well above the core measure, which has a 51.3% index weighting. The explanation lies in the NBS health warning that processed foods are included in both the core and food measures.
The same point is made by a surge in imported food inflation to 15.2% y/y in March from 13.2%.
Fuel shortages were another reason for the poor inflation report. Prices of housing, water, electricity, gas and other fuels increased by 15.9% y/y.
Fx scarcity continues to bite. Importers can meet only a small part of their needs at the CBN rate: for the balance, they pay the parallel rate or they do not import. In either case, inflation ticks upwards. The bid at the CBN’s sales of fx is easing, which reflects both a softening of household demand and greater realism about supply on the part of the banks/importers.
The MPC hiked last month so that its new policy rate of 12.00% would remain positive in real terms. Logically, it should now hike again when it next meets. The fx shortages are set to continue in the months ahead, which points to more depressing inflation reports and, perhaps, more monetary tightening. However, the MPC may choose to modify its thinking on inflation and introduce a bias in favour of growth in its policy.