June 2, 2020/InvestmentOne Report
Please click to download our April 2020 Inflation Update
· Recently, the National Bureau of Statistics released the inflation report for the month of April 2020 which revealed that headline inflation continued in its upward trajectory. According to the report, inflation rate accelerated to 12.34% y/y in April 2020 from 12.26% in March 2020.
· As usual, the food sub index remained the main driver of the uptick in headline inflation increasing by 15.03%, 5bps higher than the level in March 2020.
· In terms of the Core sub-index for April 2020, we saw a faster increase in the y/y number by 25bps to 9.98%. On a month-on-month basis, the index rose by 0.93%, 13bps higher than previous month. We anticipated the increase in core inflation due to the eventual devaluation of the Naira by the CBN in the month on March 2020 and FX illiquidity which could have put pressure on some imported core items.
· Going forward, we expect inflation to sustain its upward trajectory due to a number of factors such as the impact of the lockdown in major cities which may impair the agricultural supply chain and continue to cause a hike in food prices; increase in demand for pharmaceutical products, ongoing border closure and FX challenges on imported products.
· Furthermore, while we expect CBN to use CRR to manage the effect of its recent 100bps cut in MPR to 12.5% on liquidity, we think a lower borrowing rate could still encourage more borrowing and by extension put pressure on inflation rate which has been rising due to cost-push factors. We believe current inflationary pressures are more of cost push, which could be tackled through increased productivity particularly food products and easing transportation challenges for agricultural producers. With the recent outbreak of the COVID-19 pandemic in Nigeria and its attendant impact on economic activities, we anticipate heightened inflation numbers as prices of healthcare products and services are currently under pressure.
