24 July 2018 ( Lagos ) : Nigeria’s annual inflation moderated once again, declining from 11.6% in May to 11.2% in June, slightly ahead of analyst’s estimate of 11.1%, and well ahead of Consensus projection of 10.9%. Despite this fall, month-on-month (m/m) inflation rose for a consecutive month, from 1.1% in May to 1.2% in June, the highest figure since June 2017. 

This trend was replicated across the Food and Core sub-indices, as they declined from 13.4% and 10.7% to 13.0% and 10.4% respectively in y/y terms, but advanced from 1.3% and 1.0% to 1.6% and 1.0% in m/m terms. 

Domestic food prices drive inflation 

Analysts note that most inflationary pressure can be traced to food prices—domestic food in particular as m/m imported inflation has been relatively flat for the last six months even as analysts have seen an uptick in monthly food inflation. The imported category accounts for about a quarter of the overall food basket. 

Even after accounting for some seasonal effect on food prices, it is likely that resurgent domestic food price pressure is partly as a result of the ongoing violence in the Middle Belt, the major food-producing region in the country. Analysts would see the magnitude of this effect at the onset of the harvest season at the end of Q3’18. 

Core inflation was relatively flat m/m, and m/m inflation once food and energy prices are stripped out was also flat at 1.1% in May and June. 

Slight upward revisions to 2018 inflation outlook 

June inflation numbers are only slightly ahead of analyst's estimates, and are consistent with their projection of accelerating m/m inflation. As a result, their July forecast is little changed at 11.1% y/y (previous: 11.0% y/y), but analysts now see annual inflation reversing trend as early as August (previous: September), and average annual inflation printing as high as 12.3% y/y (previous: 12.0% y/y). 

Inflation is calculated by looking at corresponding numbers of the Consumer Price Index (CPI). The CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services over time, relative to a base year. The current base year for the Nigerian CPI is 2009. Annual inflation for a month is computed by comparing the percentage change in the CPI figure for that month in the two comparison years. 

Reporting for EasyKobo on Tuesday, 24 July 2018 in Lagos, Nigeria

Source: Vetiva Capital Management Limited