October 16, 2019/Cordros Report
After three consecutive months of deceleration, consumer prices increased in September, as headline inflation widened by 22bps to 11.24% — the highest reading since May 2019 – according to the National Bureau of Statistics (NBS). In terms of drivers, we witnessed price pressures across both the core and food baskets.
This week, the federal government announced complete closure of all land borders against earlier partial closure. Thus, the supply of food items – especially fish, vegetable products, and grains – is expected to remain constrained despite the ongoing main harvest season. Beyond that, the unrelenting rainfall also inspires little confidence. In fact, the weather forecast by the Nigerian Meteorological Agency (NiMeT) suggests a sustained trend in the rainfall pattern. Thus, we believe mounting risks will test food inflationary resilience over Q4-19. Having factored in the highlighted factors, food inflation is expected to settle at 0.84% m/m in October and 13.53% y/y.
Elsewhere, despite the uptick recorded in core inflation in September, we see no major pressure point in October, giving the CBN’s defensive stance on the currency amidst continuous foreign reserve depletion. Similarly, PMS price across states in Nigeria shows convergence at NGN145litre, with mild deviation in some states. To add, we believe the impact of higher diesel prices on energy inflation will ease in October. Hence, we expect core inflation to moderate, printing 0.75% m/m and 8.89% y/y in October.
Overall, given the low base from the corresponding period of the prior year, we expect headline inflation to resume its upward trajectory, expanding to 11.32% y/y in October 2019.