Oct 17 (Lagos) - Yearly inflation rose to 17.9% in September. The decelerating monthly inflation trend that began in June persisted further in the last month as the monthly rise in the Consumer Price Index (CPI) slowed to 0.8%, the lowest this year.
Looking at the two sub-indices however, we get contrasting images. Whereas
month-on-month (m/m) Food inflation (0.8%) recorded the slowest pace so far this year – still up 16.6% y/y, m/m Core inflation reversed recent trend to register higher at 1.0% (August: 0.9%). In fact, on a weighted basis, Core inflation contributed more to monthly inflation than Food, a return to a 4- month trend that was temporarily broken in August. This rise brought Core inflation to 17.7% y/y in September (August: 17.2%).
Food, Core inflation tread diverging paths
The slowing pace of Food inflation can be traced to a steadying in the “Imported Food” category which accounts for over 10% of the weight of the CPI. Although Imported Food inflation remains elevated at 20.8% y/y (August: 20.7%), it only rose 0.9% on a monthly basis, which is the lowest reading since November 2015. This can be explained by the performance of the naira which held at the Interbank market at an average of NGN313/USD in Aug/Sep*. And whilst the parallel market rate fell further (average of NGN383/USD in Jul/Aug to NGN408/USD in Aug/Sep), this weakness did not materially translate to imported inflation, suggesting a relatively stronger pass through of the interbank rate on prices with heavy weighting of imported
staples such as wheat and sugar which are funded from the Inter-bank market.
Core inflation continues to be the problem child, despite a moderation in average energy prices in the month of September. Average prices of Premium Motor Spirit (PMS), Diesel, and Household Kerosene (HHK) declined 0.6%, 2.0%, and 3.2% respectively in the month of September. A number of key groups continue to drive the Core index. The month of September saw further increases in Utilities – which rose by 26.3% y/y vs. 25.9% in August, Clothing & Footwear – which rose by 17.2% y/y vs. 16.7% in August, and Education – which rose by 19.4% y/y vs. 18.5% in August.
Divergent pressure points across regions
State-level data shows different pressure points across the country. Inflation in Kwara hit 40.9% y/y in September (August: 40.5% y/y) amidst surging HHK prices with average price of the fuel across the state rising 32.6% to ?324.07 (National average: N288.70). In contrast, HHK prices moderated by up to 13.2% and 13.9% in Abuja and Edo respectively, underlining the wide geographical variation in prices.
Furthermore, average price of PMS in Bayelsa declined 10.4% from a national high of ?164.30 in August. National average PMS price is now ?146.30, still marginally above the prescribed
?135-?145 band. Finally, Kogi recorded the lowest levels of yearly inflation in the country, with the composite and food indexes coming in at 6.9% and 2.2% respectively. However, this is strongly driven by a high base effect given average prices in Kogi were at a national high in September 2015. Putting all this together, the Urban inflation hit 19.5% y/y (August: 19.3% y/y) whilst Rural inflation continued to trend below it at 16.4% y/y (August: 16.1% y/y).