Dear Afrinvestor, Flash Note: Headline Inflation Eases Further by 0.2%- November Inflation Rate Pegs at 7.9% Following the recent trend in headline inflation since the 2014 peak reached in Aug, YoY inflation rate for November yet again moderated by 0.2% to sit at 7.9% from the previous 8.1% level in October according to the data released by the National Bureau of Statistics (NBS). Inflation rate has consistently moderated at a constant rate of 0.2% in the last 4 months following the consistent fall in food inflation within the period (food inflation peaked at 10% in August). Inflation eased from 8.5% in August to 8.3% in September while it further moderated to 8.1% in October and now 7.9% in November. If this trend is sustained (though we think this is most unlikely), we would expect December inflation to settle at 7.7%. Food Inflation Still Dictating the Pace Given the weight food inflation constitute within the CPI basket (≈51%), the continuous drop in prices of the constituent basket has had invigorating positive impact on the headline inflation (a composition of all items index). The food index moderated to 9.1% YoY, 0.2% down from October level of 9.3%. According to the data from NBS, save for increases in prices observed in coffee, vegetables, tea and cocoa groups, other food items’ prices moderated to support the tempered food price level that was recorded. We opine that the moderating food prices may not be unconnected with relatively stable rainfall and harvest that have been experienced recently. Core Inflation Remains up at a Constant Rate Similar to the trend in headline inflation, core inflation (which is the price index of All items less farm produce) was seen to be sustained at high level since the last four months. The index in November surged higher by 6.3% YoY while maintaining a stable level MoM. According to NBS, the high level of core inflation was sustained due to sharp rises in the garments, medical services, solid fuels and household utensils group. Interestingly, some of these items are usually in high demand during the December yuletide season. Against this backdrop, we expect this high level of core inflation to be sustained throughout 2014. Implications and Expectation Whist we note the continuous moderation in headline inflation since August occasioned by the continuous drop in food inflation, we expect a likely reversal of the moderating trend given the recent 8.4% devaluation of the currency by the Central Bank of Nigeria. Imported food constitutes c.13.3% of the CPI basket while most of the manufacturing companies which import the bulk of their raw materials are expected to begin to pass through the effect of higher exchange rate to consumers (depending on price elasticity of the products). This is expected to have higher price implication on most of the components of the CPI basket (Nigerian being a majorly import dependent nation). Given this fact, we expect a gradual moderate higher price pressure in the coming months.
Posted on: Tue, 16 Dec 2014 06:53:36 +0000
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