March 16, 2021/Cordros Report
In our January inflation report, see report: Prices on the Rise as Security Challenges Mount, we had posited that (1) a low base effect, (2) persistent securities challenges in the country, and (3) FX liquidity challenges would keep domestic prices higher in February. True to our expectation, the headline inflation grew by 86bps to 17.33% y/y, the highest inflation rate since February 2017 (17.78% y/y). Compared to the previous month, the headline inflation increased by 5bps to 1.54% m/m (January: 1.49% m/m). The outturn is 18bps higher than Cordros’ estimate (17.15% y/y), with the deviation seen mainly from the food basket, and 23bps higher than Bloomberg median consensus estimate (17.10% y/y).
Although still below the 43-month high of 2.05% m/m in December 2020, food prices rose by 1.89% m/m in February (January: 1.83% m/m). We believe this continues to reflect the effects of (1) persistent conflict between farmers and Fulani herdsmen, particularly in the Northern region of the country, (2) lingering impact of supply chain challenges and (3) FX devaluation on food prices amid the partial reopening of the land borders. Given the low base effect from the prior year, food inflation rose by 122bps to 21.79% y/y (January: 20.57% y/y). Famine Early Warning Systems Network (FEWSNET) also reported that both staple and cash crops’ prices are significantly above their five-year averages. For example, maize prices are 43.0% and 45.0% above last year and the five-year average, respectively.
On the other hand, core inflation moderated by 5bps to 1.21% m/m. We, however, observed pressure across the core basket, with the most pressure coming from the health (+5bps), HWEGF (+4bps), clothing and footwear (+3bps) and processed food (+3bps). On a year-on-year basis, core inflation increased 53bps to 12.38% y/y – the highest since June 2017 (12.46% y/y), mainly on account of the prior year low base effect.
Tying it all together, we now expect the headline inflation to print 1.61% m/m, with the prior year low base effect translating to a y/y reading of 18.24% y/y.
