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FX Scarcity Pushes Core Inflation to highest level since May 2018

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Nigeria’s headline inflation rose for the tenth consecutive month to 12.40% YoY.
The current inflation rate is 6bps higher than the previous reading as both food and core inflation edged higher in the period.

The data shows that:
• Food inflation rose by 1 bp to print 15.04% YoY (April 2020: 15.03% YoY)
• Core inflation advanced by 14 bps to 10.12% YoY (April 2020: 9.98% YoY)
• Urban inflation rose by 2 bps to 13.03% YoY. Similarly, Rural inflation climbed by 10 bps 11.83% YoY.

The impact of foreign exchange scarcity and supply chains disruptions became more evident on the core index in the month of May, with core prices reaching the highest level last seen in August 2018.

The core index grew by 14bps to 10.12% YoY reflecting the impact of interstate travel restriction on prices of essential items and feedthrough of the Naira depreciation on prices of imported foods and other imported components.

Nigeria Inflation

Specifically, key components of the core basket expanded, starting with imported food (+2bps to 16.26% YoY), Transport (+32bps to 10.66% YoY), Communication (+13bps to 8.47%), Health (+40bps to 10.66% YoY), clothing (+8bps to 10.40% YoY), amongst others.

Elsewhere, while the bountiful harvest during the off season (April and June 2020) kept market well supplied with farm produce largely flat at 15.03% YoY, the supply chain disruptions necessitated increase in prices of processed foods by 11bps to 14.8% YoY.

“We see the trend in inflation in the month of June, mirroring similar patterns in April and May, albeit at a moderate level given the limited demand for farm produce post Ramadan. We expect the restriction of interstate travels and Naira depreciation to continue to drive prices of essential items upwards. All told, we expect the consumer price index to decline 7bps to 1.11% MoM, with headline inflation YoY expanding to 12.45% YoY in June. We still allow our model to reflect the likely implementation of the higher electricity tariff in July, coupled with our expectation of persistent Naira volatility, elevated transportation cost due to social distancing policy and higher cost of essential items. All told, we expect average inflation rate for 2020 to settle at 12.6% on our base case,” analysts at Nova Merchant Bank said.

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