The National Bureau of Statistics (NBS) today reported Nigeria’s February headline inflation at 11.9% year-on-year (y-o-y), down by 70bps from 12.6% in January 2012. In the same vein, food inflation fell to 12.9% y-o-y from 13.1%. Core inflation (measured by All Items Less Farm Produce Index) however rose to 13.5% y-o-y from 12.7% in January 2012.

Afrinvest Research is of the opinion that the decline in inflation rate is not sustainable in the near term. The recent upward (c.5.0%) adjustment to aggregate fiscal spending by the House of Assembly, the introduction of new tariff regimes on certain power and food imports, partial removal of subsidies on petroleum products and volatility in the official exchange rate are factors that pose immediate threats to inflation.

The decline in headline inflation is however expected to increase positive real returns in the fixed income and money markets, which will further encourage asset reallocation away from equities. Nonetheless, we expect the headline inflation to remain in double digits through 2012, fuelled by consistently unfavourable supply-push factors.

Click to download Flashnote February 2012 Inflation Figures-Afrinvest