WED, APRIL 17 2019-theG&BJournal- The consumer price index, (CPI) which measures inflation increased by 11.25 percent (year-on-year) in March 2019. This is 0.06 percent points lower than the rate recorded in February 2019 (11.31) percent. Increases were recorded in all COICOP divisions that yielded the Headline index. On month-on-month basis, the Headline index increased by 0.79 percent in March 2019, this is 0.06 percent rate higher than the rate recorded in February 2019 (0.73) percent. The percentage change in the average composite CPI for the twelve months period ending March 2019 over the average of the CPI for the previous twelve months period was 11.40 percent, showing 0.16 percent point from 11.56 percent recorded in February 2019.
The March CPI reading showed that the trend in inflation remains largely contained. Specifically, headline inflation tapered for the third consecutive month, shedding 6 bps to 11.25% (Cordros estimate: 11.22%). Dissecting the breakdown, we note that the deceleration stemmed from both the core and food baskets. However, m/m headline inflation (+6 bps) registered its first increase since November 2018, on account of price pressures in the food basket, which masked the decline in the core segment.
In our February inflation report, see report: Nigeria’s headline inflation still in check, we had posited that the impact of the March election spending would be negligible on the core inflation reading since Nigeria’s inflation is largely cost-push, and that barring negative surprises to FX and energy prices, we expected core inflation to remain in check.
True to our prognosis, Core inflation dropped deeper into single digit territory, moderating by 34 bps to 9.5% from a year ago, driven by the blend of lower PMS price (-11.1% y/y) and stable FX (USDNGN: +1.1% YtD), with a knock-on impact on transport (-18 bps), HWEGF (-5 bps), and energy (-52 bps) inflation. Equally, core inflation dipped by 12 bps from a month ago, driven by Education (-4 bps) and Hotel & Restaurant (-3 bps), both of which contributec.10% to the core basket.
Elsewhere, food inflation(13.45% y/y)sustained its descent into the third straight month, moderating slightly by 2 bps from a year ago, on the back of sharp temperance in processed food (-522 bps) and imported food (-1 bps), both of which neutered the renewed pressure in farm produce (+21 bps). To our mind, the jump in farm produce was on account of higher transportation cost which exerted upward pressure on food price. NBS reported that diesel price increased by 1.58% m/m, with attendant negative impact on transport inflation (+1 bps to 0.69% m/m).
Looking ahead, whilst the still elevated diesel price should have ordinarily driven m/m food inflation higher in April, we expect a ramp up of output in April off season harvest by Nigerian farmers will cap higher transport cost pass through to food prices. That, together with a stronger naira, which continues to discourage cross-border demand from neighbouring countries, informs our sanguine view on food prices. Thus, we expect m/m food inflation to moderate slightly in April.
Elsewhere, despite the fuel scarcity which greeted the month of April across key segments of the federation, we remain largely confident of a subdued m/m core inflation reading in the near term. We highlight that the scarcity lasted for a few days and normality is back as NNPC sustained its aggressive supply tactics. On balance, we look for m/m headline inflation reading of 0.81% in April, which translates to y/y figure of 11.23%.
That said, following our recent engagement with managements of major downstream oil players, we update our views on inflation. With the FGN, via the NNPC, taking over PMS importation, most downstream players acknowledged the fact that PMS margins have significantly thinned out from NGN2/litre to a range of NGN0.15 -NGN0.20/litre. Nevertheless, players were poised that PMS market deregulation will not happen this year –earliest is 2020.
Against the foregoing, we see no risk to inflation through the rest of the year. Thus, we cut our m/m inflation reading by 56 bps on average. We now look for year-end inflation reading of 10.40% y/y.
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