January 21, 2020/InvestmentOne Report
Please click to download our December 2019 Inflation Update
· The National Bureau of Statistics (NBS) released the inflation report for the month of December 2019 which showed an acceleration in headline inflation rate from 11.85% in November to 11.98% y/y. This has been the highest rate since April 2018.
· The Food index showed a rise of 14.67% y/y in December 2019, 18bps higher than November 2019 level. Similarly, on a monthly basis, the index inched up to 0.97% m/m. We believe the rise in the food index may be due to increase in staple food prices.
· The rise in the food sub-index could be attributed to the 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.
· The Core Inflation for December 2019 stood at 9.33% y/y and 0.81% m/m, a 34bps and 2bps increase when compared to November 2019 levels respectively.
· The average price of PMS declined by 0.29% year-on-year and 0.41% month-on-month to N145.35 in December 2019. We believe the stability in price may not be unconnected to the border closure, which has helped reduce smuggling of products in and out of the country. We postulate that PMS prices may remain at the official price of N145 per litre.
· In the same vein, we opine that the complete border closure as pronounced by the president in conjunction with the increased LDR benchmark to 65% from 60% as mandated by the apex bank only calls for increased inflationary pressures. While the border closure may continue to cause a shortage of food supply thereby putting more pressure on food prices in this festive period, an expectation of higher loan creation to achieve the LDR target may increase money in circulation thus increasing demand for consumption in the near term.