September 16, 2021/CSL Research

Yesterday, the National Bureau of Statistics (NBS) published the August Consumer Price  Index (CPI) report which in line with our expectation, showed a 17.01% y/y rise in headline  inflation, 0.37ppts lower than the 17.38% recorded in July 2021. While the high base in 2020  was supportive, the food segment of the CPI basket remains the major driver of disinflation.  Month on–month (m/m) , headline inflation rose by 1.02%, a 0.09ppts increase from the  0.93% m/m performance recorded in July. Sustaining the recent trend, the food index  slowed further to 20.3% y/y compared with 21.0% y/y in July. Month on month however, the  food sub–index increased by 1.06% in August 2021, up by 0.20 ppts from 0.86 % recorded in  July 2021. Core inflation rose by 13.41% in August 2021, down by 0.31% when compared  with 13.72% recorded in July 2021.

The food component, which constitutes c. 53.0% of the Nigerian CPI, is the major driver of  the decline in inflation rate. In our view, the deceleration in food prices was mainly driven by the early harvest season in southern Nigeria, However, the incessant killings from banditry, kidnapping, cattle rustling and insurgency in the food–producing regions of the country will remain a drag to recovery in food prices.. Insecurity has continued unabated in the country’s  food–producing regions (even in other parts) hindering farmers from getting to their  farmlands. The continuous depreciation of the Naira at the parallel market will also drag  imported food inflation..

For Core Inflation, the 13.4% y/y performance was triggered, mainly by the combined effects of the surge in the prices of Shoes and other footwear, Household textile, Motor cars, Garments, Game of chance, Major household appliances, Hospital services, catering services, Appliances, articles and product for personal care and Clothing materials, other articles of clothing and clothing accessories. In our view, the increase can closely be linked to the effect of currency pressure on cost. Also, the rising cost of cooking gas continues to reflect on Housing, Water, Electricity. Gas and Other Fuel (HWEGF), the largest sub–component of core inflation. We expect inflation to further moderate in September, supported by base effect and early harvest season.