July 18, 2019/InvestmentOne Report

Please click to download our June 2019 Inflation Update

·         On Monday, the National Bureau of Statistics (NBS) released the Inflation report for the month of June 2019, which showed a decrease in inflation rates against our expectations. The report showed an deceleration in headline inflation, following two consecutive months of acceleration, to 11.22% year-on-year (y/y) from 11.40% y/y in May 2019.

·         The Food sub index showed a 9bps deceleration to 13.56% y/y in June 2019. Similarly, on a monthly basis, the index  grew by 1.36% from 1.41% in the previous month.

·         We highlight that the increase in the exchange rate for customs duty from N306 per dollar to N326/US$ may increase the prices of imported goods, particularly imported food items.

·         Similar to the preceding months, the rate of increase in inflation in the Core-Sub Index moderated to 8.84% y/y from 9.25% y/y in May 2019.

·         The availability of Premium Motor Spirit (PMS) during the course of the month most likely contributed to the relative stability in PMS prices across the nation as average PMS price in June 2019 remained at par with the official pump price stipulated  (N145.36; down 1.84% y/y and up by 0.22% m/m).

·         Feeding off of indicators such as the CBN’s recent stance regarding the regulation of the financial sector in recent weeks, lower interest rates and an imminent commencement of the approved minimum wage, we believe the economy is set to face increased inflationary pressures in the coming months.

·         We believe the CBN’s position to maintain sufficient liquidity in the system in order to drive growth coupled with prohibiting banks from having a loan to deposit ratio of less than 60% spells for increased inflationary pressures in the coming months.   

·         Ultimately, we believe the CBN’s continued Open Market Operations (OMO) auctions could help to reduce these inflationary pressures, in the near term.