May 22, 2020/Cordros Report

We had stated in our last update (See Report: Great Lockdown to Stoke Pressure on Food Prices) that the combination of lockdown instituted by the FGN, together with the negative passthrough impact of Naira depreciation on both the core and food basket, will stoke upward pressure on consumer prices in April. As we had expected, the National Bureau of Statistics (NBS) released inflation data for April 2020, which showed that, for the eight consecutive months, headline CPI notched another yearly increase – 8bps to 12.34% y/y. Relative to our forecast, the outturn was 4bps higher, with the largest variance stemming from the core basket.

For us, aside from the Naira weaknesses which bled to both the core and food basket, we believe that the impact of supply chain disruption, occasioned by the COVID-19 outbreak, is now becoming a lot more evident on Nigeria’s consumer prices, especially the food basket. To ascertain the impact of COVID-19 outbreak on April CPI, we note that m/m food inflation (1.18%) is now at the highest level seen since November 2019 (1.25%), where the blend of land border closure and festive induced demand, at the time, fanned higher food prices. Breakdown provided showed that the expansion in the food inflation was driven by all the sub-categories with the processed food basket (+82bps) leading the pack, followed closely by farm produce (+21bps) and imported food (+2bps) baskets.

Meanwhile, core inflation grew at a faster pace by 14bps to 0.94% m/m, the steepest monthly expansion in 22 months. While we do not downplay the second-order impact of Naira depreciation on the core basket, we believe higher energy and transport prices also added another layer of pressure, since they both account for c. 45% of the core basket. For evidence, both the HWEFG (+9bps) and Transport (+22bps) sub-baskets printed faster price growth in the period. 

Short Term Outlook

For May, while the troika impact of planting season and lean season in the North and South, continued Naira downslide, and rising incidence of COVID-19 cases should have ordinarily pressure headline CPI in May, we believe that a favourable high base from the corresponding period of last year will place a ceiling of CPI uptrend. Against that backdrop, we now look for m/m headline CPI of 1.11%, cascading to a flat y/y inflation at 12.34%.

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