March 2018 Inflation Update – Still on Track

April 16, 2018/InvestmentOne Report

Last week, the Nigerian Bureau of Statistics released its inflation report for March 2018, which showed a moderation in headline inflation for the 14th consecutive month..
The Consumer Price Index fell to a two-year low of 13.34% year on year (y/y) in March 2018, from 14.33% y/y in February 2018, the largest reduction in headline inflation (-90bps) since May 2017. The March 2018 reading was largely in line with our estimate of 13.35% y/y for the month of March 2018..
We maintain our view that the rate of increase in consumer prices in 2018 is likely to slow on the back of the high base effect, which may be more pronounced in the Food sub-index.
We highlight that the slowdown in headline inflation was mainly the result of the high base effect. This was more prominent on the Food sub-index, which fell to a 20-month low of 16.08% y/y in March 2018 after hitting an eight-year high of 20.32% y/y in September 2017.
However, we highlight that the base effect masked the rise in consumer prices as indicated by the month-on-month (m/m) movement in headline inflation. Headline inflation increased by 0.84% in March 2018, from 0.79% in February 2018. Similarly, there was 5bps m/m increase in the Food sub-index to 0.90% and the Core sub-index inched up 9bps m/m to 0.84%.
Despite the stability in the local currency, which should be supportive of imported inflation, the continued unrest in the North, which contributed to the slowdown in activities in the Agriculture sector in 2017, is still a challenge. This, as well as the lingering herdsmen attacks in different parts of the country, could pressure the Food sub-index in the near term.
Furthermore, we highlight that the potential rise in minimum wage from N18,000 to N56,000 in Q3 2018 and election spending could put upward pressure on price levels.
Nonetheless, our inflation projection for April 2018 stands at 12.50% y/y and end of the year projection of 11.94%. Our end of the year estimate is in line with Central Bank of Nigeria and Federal Government’s targets of 11-12% and 12.40% respectively in the short term though still above CBN’s long term target range of 6-9%.

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