Nigeria August 2021 CPI: Sustained Moderation in Inflation Expected over the Short Term.

September 15, 2021/Cordros Report

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In August, Nigeria’s headline inflation sustained its deceleration in line with the slower pace of increase in food prices amidst stable fuel prices. According to the National Bureau of Statistics (NBS), the year-on-year headline inflation tapered by 37bps to 17.01%. The food basket (+20.30% y/y vs July: +21.03% y/y) moderated by 73bps while the core segment (+13.41% y/y vs July: +13.72% y/y) resumed a downtrend after the increase recorded in July. On a month-on-month basis, the headline inflation notched up by 9bps to 1.02% m/m. The headline inflation print is 6bps higher than Cordros’ estimate (16.95% y/y), with the deviation mainly from the core basket but was in line with Bloomberg’s median consensus estimate (17.00% y/y).

In our July inflation report, we expected that food prices would trend higher in August given the troika impact of (1) lean season in the Northern part of the country, (2) elevated security challenges in the country, and (3) increased cost of farming inputs and tools. In line with our expectations, food prices increased by 1.06% m/m in August (July: +0.86% m/m). Aside from the factors highlighted, we think currency depreciation added another layer of pressure to imported food. Accordingly, prices increased across the Farm produce (+60bps to 1.23% m/m), Processed food (+8bps to 1.01% m/m) and Imported food (+3bps to 1.36% m/m) sub-baskets.

Elsewhere, core inflation moderated by 53bps to 0.77% m/m – the lowest since November 2020 (+0.71% m/m). The moderation reflects stable utility prices and a decline in the prices of health-related products as the COVID-19 induced demand begins to dissipate. Specifically, prices of the HWEGF (+0.84% m/m vs July: +0.84% m/m) sub-basket was unchanged in August compared to July, while the Health (-12bps to +1.01% m/m) sub-basket declined to the lowest since March 2020 (+0.81% m/m).

On a balance of factors, we expect the deceleration on consumer prices to be maintained and project headline CPI at 1.03% m/m in September, with the high base in the prior year cascading into a 52bps decrease in y/y inflation rate to 16.49%.

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