May 15, 2018/Cordros Report
- Data from the National Bureau of Statistics (NBS) show that Nigeria’s inflation rate continued the moderation it started in 2017.
- Again, the reported moderation in the headline consumer price index reflects the high base effect of April 2017, considering the fact that the headline index was little changed, on a month-on-month basis.
- Noteworthy, we find the marginal decline in the m/m headline inflation rate contentious, as it clearly conflicts the simultaneous m/m increases in both food and core inflation rates.
- All in all, we note the sustained stickiness in general price levels, highlighted by m/m headline CPI ranging between 0.80% – 0.83% since the turn of the year.
- That, to us, is concerning, considering significant upside risk factors to inflation beyond H1-18, more so when the lingering base effect would have lost its steam.
- While we share consensus view of a compelling case for a rate cut at next week’s MPC meeting (amid positively evolving macroeconomic fundamentals), we think the MPC won’t cut rate just yet.
- Besides, giving the MPC the benefit of doubt of pursuing a proactive policy stance, our view is that the Committee may find it difficult to aggressively ease its policy stance, considering a number of risk factors.
- The MPC may be comfortable with a 100 bps (50 bps apiece over H2) rate cut this year, to be augmented by implicit easing (or otherwise) anchored on market rates in the fixed income space – as is currently the case.
- Food inflation rose by 14.80% y/y in the review period, notably lower than the 16.08% y/y recorded in March.
- Core inflation was 10.9% y/y during the review period, vs. 11.2% in March.
- Following April inflation numbers and our view of continued impact of base effect, we revisit our model and revise our May inflation projection lower by 30 bps to 11.36% y/y (0.86% m/m), from 11.66% y/y.
- Consequently, we now expect 2018 average inflation to be lower at 12.00% (previously 12.21%).