March 21, 2018/InvestmentOne Report
Last Wednesday, the Nigerian Bureau of Statistics released its inflation report for February 2018, which showed a moderation in headline inflation for the 13th consecutive month.
The consumer price index fell to 14.33% year on year (y/y) in February 2018, from 15.13% y/y in January 2018.
We maintain our view that the rate of increase in consumer prices in 2018 is likely to slow on the back of the high base effect, which may be more pronounced in the Food sub-index.
While the official price of PMS may be maintained at N145 per litre, we point out that the continued scarcity of the product has seen the price paid by consumers rise c.15% y/y, though it dropped by c.9.6% m/m, to N172.5 per litre in February 2018. This poses a significant risk to the cost of transportation and consequently the outlook for inflation if the availability of the commodity does not increase in the near term.
Despite the stability in the local currency, which should be supportive of imported inflation, the continued unrest in the North, which contributed to the slowdown in activities in the Agriculture sector in 2017, is still a challenge. This, as well as the lingering herdsmen attacks in different parts of the country, could pressure the Food sub-index in the near term.
Furthermore, we highlight that the potential rise in minimum wage from N18,000 to N56,000 in Q3 2018 and election spending could put upward pressure on price levels.
Nonetheless, our inflation projection for March 2018 is 13.35% y/y and 11.95% y/y in December 2018. Our end of the year estimate is in line with Central Bank of Nigeria and Federal Government targets of 11-12% and 12.40% respectively in the short term though still above CBNâs long term projections of a single digit inflation figure.