March 20, 2020/InvestmentOne Report

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·         Inflation numbers were released by the National Bureau of Statistics (NBS) for the month of February 2020 revealed that headline inflation continued its upward trajectory. According to the report, Inflation accelerated to 12.20% y/y in February 2020 from 12.13% in January 2020.

·         The Food sub index showed a 12.85%y/y increase, 18bps higher than the level in December 2019. We posit the increase in the index were as a result of an increase in the prices of staple foods.  In the same vein, on a monthly basis, the index however declined by 12bps to 0.87% m/m when compared to January 2020.

·         In terms of the Core inflation for February 2020, while the index year-on-year rose by 9bps to 9.43%, on a month-on-month basis, it declined also declined by 9bps to 0.73%.  

·         Premium Motor Spirit (PMS) was relatively stable during the course of the month of February 2020 as disclosed by NBS as it was down up by 0.08% y/y to 145.41 per litre. We believe the   stability in PMS Price may have seen some support from border   closure, which has helped to reduce the smuggling of the product out of the country, in conjunction with the Federal Government mandate to sustain sufficient supply of the product.

·         Going forward, we expect inflation numbers to continue its upward trend as a result of minimum wage implementation, border closure and CBN’s LDR policy. Furthermore, we believe that the increase in inflation figures for the month of February 2020 may have been due to the increased VAT on goods and services to 7.5%.

·         It was announced by the Petroleum Products Pricing Regulatory Agency (PPPRA) that the Premium Motor Spirit (PMS) be reduced to N125 per litre from N145 per litre effective from 19th of March 2020. The reduction of the price came as a result of the recent drop in oil prices due to the Coronavirus pandemic in conjunction with slowing global oil demand.

·         Lastly the increased prospects of devaluation portends towards increased inflationary pressures given the country’s dependent on imports.