Price pressure remains amidst decelerated headline inflation

Though the nation’s headline consumer price index extended deceleration (which started in 2017) to the seventeenth consecutive month recording a rate of 11.23% year-on-year in June, moderating from 11.61% year-on-year in May, the headline index increased by 1.24% (vs. 1.09% the previous month) on month-on-month basis.

The percentage change in the average composite CPI for the twelve months period ending June 2018 over the average of the CPI for the previous twelve months period was 14.37 percent, showing 0.42 percent point lower from 14.79 percent recorded in May 2018.

Similarly, the composite food index rose by 12.98 percent in June 2018 (13.45% in May 2018).

This rise in the food index was caused by increases in prices of Potatoes, yam and other tubers, Bread and cereals, Fish, oils and fats, Milk, Cheese and Eggs, Vegetables, Fruits and Meat.

On a month-on-month basis, the food sub-index increased by 1.57 percent in June 2018, up by 0.24 percent points, from 1.33 percent recorded in May 2018.

The average annual rate of change of the Food sub-index for the twelve-month period ending June 2018 was 17.75 percent, down 0.61 percent points from the average annual rate of change recorded in May 2018 (18.36) percent.

According to experts at Cordros Capital, the deceleration in rates may likely impact on members of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) finding the case for maintaining status quo most compelling.

“We would like to reiterate the MPC’s shift from a potential rate cut to a more proactive view of inflation, amid upside risks to liquidity injection over H2-18”.

Furthermore, Cordors Capital also revisited its model and revised its July inflation projection higher by 45 bps to 11.16% y/y (1.15% m/m), previously 10.71% y/y (1.04% m/m).

“Our workings were largely guided by our view that base effects will weaken further. Consequently, we now expect 2018 average inflation to be slightly higher at 12.29% (previously 12.09%).

“While we share consensus view that elevated liquidity profile over the rest of the year portends upside risk for inflationary conditions, we equally posit that supply-side dynamics will play even a much greater role.

“We establish that circa 87% of the entire CPI basket is driven by factors independent of liquidity position owing to the autonomous consumption nature of the specific constituent elements.

Very instructive in that regard, for instance, we highlight likely pressure from higher food prices (domestic and imported food inflation jointly account for 64% of the entire CPI basket) over the rest of the year amid the unresolved security upheavals in the agricultural space and rising global inflation”, the firm added.