Based on the data released by the National Bureau of Statistics, Headline inflation in Nigeria rose for the tenth consecutive time to 12.56% in June (compared with 12.4% in May), which is the highest level since March 2018. We believe the rise in the headline index was driven by the continued uptrend in food prices given the lingering disruptions to the supply chain induced by the global pandemic, re-emergence of liquidity constraints in the FX market amidst the sustained widening of supply gap emanating from the closure of the land borders. However, the core index rose marginally by 1bps to 10.13% in June.
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The Food index was up 14bps to 15.18%, the highest level since March 2018. The commodities in the food basket that recorded the highest price increases include; bread and cereals, potatoes, yams and other tubers, fruits, oils and fats, meat, fish, and vegetables. We highlight that food prices have been rising since August 2018 when the government implemented its anti-smuggling land-border closure to stem the illegal importation of rice and other illegal products. With the onset of the global pandemic, the shortfall in the supply of major consumer staples has been exacerbated by supply chain disruptions, leading to upward pressure on prices.
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On a month on month basis, the headline index rose by 1.21% in June from 1.17% in May while food inflation rose by 1.48% in June from 1.42% in May. Core inflation on the other hand decreased marginally by 2bps to 0.86% in June. We highlight that the magnitude of change in the headline and food index slowed in June to 0.05% (May; 0.15%) and 0.06% (May; 0.24%) respectively. We believe the continued relaxation of the lockdown measures in the month supported the improved supply of output to the market.
Looking ahead, we do not envisage a slowdown in inflationary pressures as we expect supply side factors to keep food prices elevated. Additionally, we think the recent hike in petrol prices (by c.14%) in July and liquidity challenges in FX market will put further pressure on the price index.
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