May 16 (Lagos) - Bucking expectations once more, Nigeria’s annual inflation registered at
17.2% in April, marginally lower than 17.3% in March but ahead of Vetiva and Consensus estimate of 16.9%. Month-on-month (m/m) inflation dropped to 1.62% (March: 1.72%), above the 12-month average of 1.33%.
In keeping with this year’s trend, Food Inflation was the primary driver, clocking in at 19.3% – an 8-year high, as the food index rose 2.04% m/m (March: 2.21%). In contrast, steered by lower m/m inflation (April: 1.10% vs. March: 1.32%), Core Inflation moderated to 14.8% y/y, the lowest reading since the corresponding period of 2016.
Rising food prices confound
Food Inflation is at worryingly high levels. The index is up 8% in the first four months of the year and at current pace, national food prices would have risen 27% by the end of 2017. This price surge is a domestic phenomenon as Imported Food Inflation moderated 18.1% in March to 17.0% in April understandably given the improvement in liquidity in the foreign exchange
market, relative stability of the exchange rate, and downtrend in global food prices.
From a regional perspective, pressure on food prices is most apparent in the South-East and North-West regions, driven by food prices in Enugu and Kano respectively. Looking at data from the National Bureau of Statistics Select Food Prices Watch 2017, domestic food prices have been trending upwards, though average price of tracked items fell marginally (0.9%) m/m.
Energy prices ease Core Inflation
The moderation in Core Inflation can be partly attributed to a slower pace of inflation in Utilities – down from 18.9% in March to 16.0% in April. For petroleum products, this would have been driven by lower product landing costs in March compared to the first two months of 2017. Unsurprisingly, average household kerosene (HHK) and automotive gas oil (diesel) prices
moderated for the second consecutive month. However, average premium motor spirit (PMS) prices rose slightly (0.3%) amidst a larger variation in regional prices.
Inflationary trend remains in 2017
2016 was a particularly tough year for Nigeria and some of its regional peers as they all experienced high levels of inflation, mainly due to currency depreciation and high energy prices. As those inflationary pressures wane and base effects kick in, the expectation is that inflation will moderate over 2017.
However, we have observed differing experiences across countries. Ghana has been the most successful so far as its headline inflation rate has fallen from 18.9% in April 2016 to 13.0% in April 2017 – a reversal compared to Nigeria. This has permitted the central bank to continue its monetary easing cycle (250bps rate cut since November 2016).
Angola’s experience is most similar to Nigeria’s inflation is moderating but remains higher than previous year’s levels, as well as the central bank’s benchmark interest rate. But unlike with food prices in Nigeria, Angola has no new source of inflationary pressure so the pace of moderation should pick up. Egypt has fared the worst this year as the devaluation of the Egyptian pound in November has stoked inflation which hit a 30-year high in April.
Policy powerless to tackle stubborn inflation
The Monetary Policy Committee of the Central Bank of Nigeria meets next week and they will mull over recent inflation figures. Unfortunately, we consider the policy levers in their arsenal as inadequate for tackling the current inflationary pressure in the country. Persistent CBN intervention in money and foreign exchange (FX) markets ensures minimal excess naira liquidity and current inflation is neither a demand nor monetary phenomenon.
Instead, we expect a continuation of trend so far as food prices weigh on the consumer basket even as better FX liquidity stabilizes the currency and suppresses imported inflation. In light of this and with base effects kicking in strongly next month (largest m/m jump observed in 2016), we forecast inflation of 15.8% in May, bringing 2017 average inflation to 15.8%, notably higher than 15.6% recorded in 2016.
reporting for easykobo.com on Tuesday, May 16 2017 from Lagos, Nigeria
NOTE - ALL VIEWS, OPINIONS, FORECASTS AND TARGETS MENTIONED IN THIS ARTICLE ARE THOSE OF ANALYSTS AT VETIVA CAPITAL MANAGEMENT LIMITED IN VICTORIA ISLAND, LAGOS. EASYKOBO DOES NOT ENDORSE OR OPPOSE ANY VIEWS/OPINIONS EXPRESSED IN THIS ARTICLE.
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