Data from the National Bureau of Statistics (NBS) revealed that Nigeria’s consumer inflation moderated to a 43-month low in August. In the month under review, inflation grew at a pace of 11.02% y/y compared to 11.08% y/y in July.
The fall in the headline inflation was on the back of a 22bps moderation in food inflation (13.17% y/y vs 13.39% y/y in July), as well as a decline in core inflation to 8.68% y/y (July: 8.80% y/y). Thus far in the year, headline inflation has been sticky-down at c.11% y/y with a year-to-date average of 11.25%.
Across the CPI components, the biggest annual increase came from the non-alcoholic food component, which was up by 13.1% y/y in August. This aligned with the rise in global food prices in the period, as reported by the Food and Agriculture Organization (FAO) of the United Nations. The FAO reported a 1.14% y/y rise in its Food Price Index which measures monthly change in international prices of a basket of food commodities including meat, cereal and oils. The continued moderation in core inflation is due to the sustained decline in the average price of Premium Motor Spirit (PMS). The NBS reported that the average price of PMS fell to N145.5/litre in August from an average price of N146.9/litre in August 2018.
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Although the price index remains on a downward trajectory, the magnitude of the decrease is slowing, reflecting rising inflationary pressures. We remain concerned about the recent ban on food import access to the FX market which will likely increase inflationary pressures in the coming months.
Also, the expected rise in VAT rate will put pressure on the demand side, limiting the downward trend in the elevated price index (2019e: 11.3%). Overall, we do not expect a further easing cycle from the CBN due to structural challenges, and we see scope for the implementation of a tighter monetary policy stance in the near-term.
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