November 20, 2019/InvestmentOne Report

Please click to download our October 2019 Inflation Update

·         The National Bureau of Statistics released the inflation report for the month of October 2019 which unveiled that headline inflation rate accelerated upwards to 11.61% y/y from 11.24% y/y. We posit the increase in headline inflation was driven by increases in both the core and food sub index.

·         The food sub index increased by 58bps to 14.09% y/y in October 2019. Similarly, on a month-on-month basis, the index increased by 3bps to 1.33%. We believe the rise in the food index was caused by the recent border closure as well as restriction of FX for imported goods which may have taken effect as overall Food and imported food rose by 6bps and 58bps to 15.9% and 14.1% y/y in October 2019 respectively.

·         The Core Inflation for October 2019 stood at 8.88% y/y and 0.74% m/m, a 6bps and 15bps decline when compared to 8.94% y/y and 0.89% m/m realized in September 2019 respectively.

·         Although Premium Motor Spirit (PMS) during the course of October stipulated by NBS was relatively stable (145.48 down 1.19% y/y and 0.04%), we spotlight the impact festive season on PMS prices. Prices tend to be higher during the festive period as a result of increased demand which tends to surpass supply of petrol in the economy creating fuel scarcity

·         The rise in the food sub-index could be attributed to the recent border closure which could have led to an increase in the prices of staple foods such as rice, meat, bread, cereals, potatoes, yam, vegetables, fish and oils in the country.

·         Going forward, we opine that the now complete border closure pronounced by the president in conjunction with the increased LDR benchmark of 65% from 60% as mandated by the apex bank only calls for increased inflationary pressures.

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