Based on the data released by the National Bureau of Statistics, Headline inflation in Nigeria rose by 15bps to 12.13% in January, marking the fifth consecutive increase in consumer price index.
Notably, the rise in the headline index was driven by the continued uptrend in food prices given the supply gap emanating from the closure of the land borders.
Specifically, the Food index rose by 18bps to 14.85%, the highest level since April 2018. However, the core index rose marginally by 2bps to 9.35%- we believe the soft increase was supported by the stability in the foreign exchange market as well as the tight liquidity management stance of the apex bank.
We highlight that food prices have been on a steady rise since August when the government implemented its anti-smuggling land-border closure to stem the illegal importation of rice and other contraband products.
Accordingly, the shortfall in the supply of major consumer staples amidst the inability of local producers to satisfy local demand has continued to put upward pressure on prices.
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On a month on month basis, there was a synchronized upward movement in all of the three major indices, albeit the magnitude of the increase was marginal. Specifically, the headline inflation and food inflation rose by 2bps apiece to 0.87% and 0.99% in January. In our view, this reflects lower demand-pull pressures following the end of the festivities. Core inflation, on the other hand, increased marginally by 1bp to 0.82%.
Looking ahead, we do not envisage a  slowdown in inflationary pressures as we believe the closure of the border will keep the prices of major consumer staples elevated given the huge supply gap.
Additionally, we think the expected hike in electricity tariff (by c.30%), the increase in VAT (from 5% to 7.5%), and the implementation of the new minimum wage will add further pressure on the price index. All in, we expect the CBN will continue to maintain a tight liquidity posture via the OMO window in order to attract capital inflows and maintain stability in exchange rate.
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