Home News MARCH INFLATION: Arguments are still in favour of decent-Cordros Capital

MARCH INFLATION: Arguments are still in favour of decent-Cordros Capital

578
0
Access Pensions, Future Shaping

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.

|twitter:@theGBJournal|email: info@govandbusinessjournal.com.ng|

Access Pensions, Future Shaping
0 0 votes
Article Rating
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments