June 14, 2016/Cordros Research

The National Bureau of Statistics (NBS) has just released May 2016 CPI/inflation data. Headline inflation, y/y, rose sharply to 15.6% (the highest since February 2010), from 13.7% in April. Month-on-month, prices increased by 2.8% in May vs. 1.6% in April.

Food inflation rose 14.9% y/y (vs. 13.2% in April) and 2.6% m/m (vs. 1.3% in April) while Core inflation rose 15.1% y/y (vs. 13.4% in April) and 2.7% m/m (vs. 1.7% in April).

Food inflation was driven by rising prices of fish, bread, cereals, potatoes, yams and tubers, vegetables, meats, oil and fats & fruits. Core inflation on the other hand was driven by rising prices of electricity, furniture, fuels & lubricants, catering services, furniture, solid fuels, rent, transport and liquid fuels.

Imported inflation continued to rise at 18.6% (the highest since January 2012) in the reviewed period (vs. 16.3% y/y in April). Month-on-month, prices rose by 3.1% (vs. 1.9% in April), the highest since March 2012. This reflects a protracted pass through consequence of the weak currency, which has continued to impact the prices of both food and non-food items. We note particularly the volatility in the parallel market Naira exchange rate in May, following the quasi deregulation of the downstream petroleum sector, allowing fuel importers to source forex outside the official window.

Housing, electricity, water, gas and other fuel inflation rose 22.0% y/y (vs. 19.0% in April) and 3.7% m/m (vs. 3.3% in April). The y/y and m/m figures are record highs and reflect higher energy — electricity and fuel — prices.

Transport inflation rose 15.6% y/y (vs. 14.0% in April) and 2.7% m/m (vs. 1.6% in April). The y/y increase is the highest since May 2012 while m/m, it’s the highest since March 2012. The NBS reported that the average price paid by households on fuel moderated m/m (c.9%) and higher y/y by 27%.

Although the inflation figure was widely expected, yields in the fixed income and money markets are most likely to adjust to the result.

The continued uptrend in inflation suggests that the structural defects that have also resulted in rising unemployment, shrinking consumption expenditure and negative growth are not abating. We consider this as a negative signal for equities investors.