By Yakubu LAAH InvestAdvocate
Lagos (INVESTADVOCATE)-Nigeria’s headline inflation eased 20 basis points to 8.1 percent in October from 8.3 percent in September, National Bureau of Statistics (NBS) said on Sunday.
The recent release shows that this was the second successive month in which a contraction of 20bps was recorded in the Consumer Price Index (CPI) and only the third month this year to record a year-on-year (y/y) contraction in CPI.
Statistics shows that the decline seen in headline inflation was as a result of slower increases in all Classification of Individual Consumption by Purpose (COICOP) divisions that make up the Headline index.
“On a month-to-month basis, headline index stood at 0.51 percent in October, down 4bps from 0.55 percent in September,” according to the NBS.
Similarly, food index continues to suppress inflation as the pace of increase in the Food sub-index inched down 40bps from 9.7 percent y/y in September to 9.3 percent y/y in October, higher than the 30bps decline seen in the preceding month and represents its lowest level since March 2014, according to analysts at Cordros Capital.
“The reduction in the rate of increase was as a result of slower increases in all groups that make up the index. Month-on-month, food prices rose by 0.50 percent, 10bps lower than the figure recorded in September and also the lowest price increase recorded on a month-to-month basis. The highest price increases recorded m/m was in the Coffee, Fish, Dairy, Fruit, Tea and Cocoa group,” the Cordros report said.
However, the report said core index remained unchanged as prices of (All Items less Farm Produce) rose by 6.3 percent in the review month, unchanged from the value recorded in September and August, hence maintaining its lowest level since June 2013.
The report affirmed the core index remained stable on a month-on-month basis, rising by 0.60 percent in October.
It said the highest price increases were recorded in the Education, Catering services, and Repair of household appliances, amongst others. “On a 12-month basis, the average annual rate of rise for the Core index was 7.1 percent for the month ended October 2014, 10bps lower than the 7.2 percent posted for the month ended September 2014,” the report added.
“The back-to-back (September and October) decline in the headline inflation in our opinion, fails to admit; (1) the huge liquidity seen in the banking system in recent time (2) higher food import – to make up for the shortages caused by the crisis in the North, and (3) the inflationary implication of Naira depreciation over the USD. However, it appears the headline index does mirrors the weakness in consumer spending, taking a cue from the pressure on the revenue of most trading companies on the Nigerian Stock Exchange. The two consecutive months of y/y contraction of inflation to 8.1 percent now leaves less for the monetary authorities to worry about the headline target of 9 percent set for the year,” Cordros research noted.
The Cordros analysts say beyond October however, they believe the outlook of Nigeria’s inflation tilts to the upside. According to them, while they expect consumer spending to remain muted in November (before rising in December due to festive demands), persistent pressure on the local currency from both the falling oil prices and the demand push consequence of the CBN’s recent FX policy at the interbank currency window – at which point the apex bank will have to tolerate some free Naira falls – are pointers of potential pressure on domestic prices.
Also, the report affirmed that the CBN’s circular released last week (which limits the remunerable amounts of banks/discount houses’ placements at the SDF), aimed at encouraging banks to increase lending to the real sector, suggests that the apex bank may be indirectly willing to accept some increases in inflation in the short term, as that policy has the consequence of releasing substantial liquidity into the system.
“At its meeting scheduled for 24th and 25th this month, we believe central to the Monetary Policy Committee’s consideration will be the wavering recovery of the global economy, the weakening crude oil prices/capital reversals and their implication on Nigeria FX reserves and the Naira, as well as the risk of the hard-to- control high banking system liquidity (which drove the recent policy move at the SDF) and election spending on price stability,” the Cordros report added.
