November 2018 Inflation Report – Headline Inflation Accelerates as Yuletide Approaches

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·         Last week, the National Bureau of Statistics (NBS) released the Inflation report for the month of November 2018, which showed an increase in consumer prices to 11.28% year on year (y/y), from 11.26% (y/y) in October 2018. We spotlight that the uptick in inflation comes after the slowdown in consumer price index    recorded in October

·         We highlight that this was slightly below our best case estimate (11.32%). The slower than expected increase on month on month basis (0.80% actual vs 0.82% estimate) may have resulted into the variance in our best case estimate and actual inflation figure.  

·         We continued to see inflation move in the same direction with the Food Sub-index as we have observed in previous months. In our opinion, the 2bps increase in inflation to 11.28% y/y may have been largely  supported by the 2bps rise in food index to 11.30% y/y.  

·         We highlight that rise in food sub-indexes may have been as a result of increase in domestic food prices, this is likely owing to the festive season which has empirically led to a push in prices. It is also likely that the Food Sub index, which had been the driver of the movements in consumer prices, will continue to drive and determine the direction of headline inflation in coming months.

·         The core inflation index came in at 9.78% y/y; down from 9.88% in October 2018.  In the same vein, the core sub-index slowed m/m by 12bps to  0.68% in November 2018, from 0.80% recorded in October 2018.

·         The likelihood of an upward trend in consumer price index continues to persist as the nation is exposed to domestic events that may arise. We opine that festive as well as election spending are likely to accelerate increase in inflation figures in the near term.

·         Our opinion is further backed by inflationary prospects driven by the implementation of the N9.12trillion 2018 budget and imminent increase in minimum wage, which may cause a spike in general price levels as consumer demand improves.

·         On the other hand, the  Nigerian National Petroleum Corporation affirms that it will ensure the availability of petroleum products to Nigerians throughout the end of year festivities and beyond barring all issues concerning scarcity. We believe this should reduce possible pressures on Premium Motor Spirit (PMS) prices in the near term.