October 17, 2019/InvestmentOne Report
· The National Bureau of Statistics (NBS) released the inflation report for the month of September 2019 which revealed that there was an increase in inflation rates to 11.24% y/y from 11.02% y/y, after three months of decline.
· We posit the increase in headline inflation was driven by increases in both the core and food sub index.
· The food sub index increased by 34bps to 13.51% y/y in September 2019. Similarly, on a sequential basis, the index increased by 8bps to 1.30%. We believe the rise in the food index was caused by the recent border closure which may have started taken effect.
· The Core Inflation stood at 8.94% y/y in September 2019, up by 27bps y/y when compared to 8.68% in August 2019.
· The availability of Premium Motor Spirit (PMS) during the course of the month according to NBS stipulated was relatively stable (N145.5 down 1.2% y/y and flat m/m). However, according to Petroleum Products Pricing Regulatory Agency (PPPRA) report, consumption for the month of September 2019 fell from 56.3million litres per day in Q2 of 2019 to 49.1million litres per day in September 2019. We opine that this may have supported availability of the product during the month
· The rise in the food sub-index could be attributed to the recent border closure which could have led to an increase in the price of staple food in the country. We also believe that the negative impact of the border closure was enough to offset the positive impact of the commencement of the harvest season which would have normally led to a fall in consumer prices.
· Going forward, we opine that the now complete border closure pronounced by the president in conjunction with the increased LDR benchmark of 65% from 60% as mandated by the apex bank only calls for increased inflationary pressures.
· Ultimately, we believe the CBN’s continued Open Market Operations (OMO) auctions could help to reduce these inflationary pressures, in the near term.