May 15, 2018/NBS
Base effect drives slowdown in headline inflation for the 15^th consecutive month to 12.48% in April 2018
Earlier today, the Nigerian Bureau of Statistics released the Inflation Report for April 2018, which showed a further moderation in headline inflation to 12.48% year-on-year (y/y), largely in line with our forecast and Bloomberg consensus (12.50%).
Given the slight change in the Core sub-index (10.92% y/y in April 2018 against 11.18% y/y in March 2018), it appears as though the continued slowdown in headline inflation was driven by the Food sub-index, down to 14.80% y/y in April 2018, from 16.08% y/y in March 2018.
In our view, the y/y change in the Food sub-index was partly due to the high base effect of H1 2017.
However, the marginal rise in the month on month (m/m) movement in the Core sub index (0.87% m/m in April 2018 compared to 0.84% m/m in March 2018) and the muted change in the m/m increase in Food prices (0.91% m/m in April 2018) was supportive of the slow increase in consumer prices in April 2018.
In the near term, we do not expect much of a reaction from markets as the headline inflation figure for April 2018 was largely expected.
Nonetheless, the continued slowdown in the increase in consumer prices should be a positive for business and consumer sentiment, which could aid the performance of FCMG and Brewery names under our coverage.
It could also increase the scope for the Monetary Policy Committee to cut its benchmark interest rate from 14% at the meeting next week (21st, 22nd May 2018).
However, given the recent sell-off by foreign investors in the secondary fixed income market, on the back of rising yields in the US and heightened geopolitical tensions, we saw the Central Bank of Nigeria (CBN) aggressively tightening system liquidity to defend the local currency
The bearish sentiment in the secondary fixed income market and the squeeze in system liquidity contributed to the yield on the one year Treasury bill surging back to 15% levels in the outgone week, from of 13% levels.
As such, we could see the Monetary Policy Rate maintained at 14% at the end of the meeting next week as CBN tries to stabilize the market on the back of the recent foreign investor outflows.