October 15, 2021/Cordros Report
Nigeria’s headline inflation moderated for the sixth consecutive month in September to 16.63% y/y, relative to 17.01% y/y in the prior month. This moderation in the headline index is consistent with our expectation for a base effect induced deceleration even as energy prices stoked upward pressures on domestic inflation on a month-on-month basis – see report: Sustained Moderation in Inflation Expected over the Short Term. On a month-on-month basis, headline inflation increased by 13bps to 1.15% – tracking below the 2021 average of 1.19%. The headline inflation print is 14bps higher than Cordros’ estimate (16.49% y/y), with the most significant deviation from the food basket.
Food prices increased by 1.26% m/m in September (August: +1.06% m/m) – the highest since March (+1.90% m/m). The increase was due to a 30bps rise in the Processed food sub-basket (+1.31% m/m vs August: +1.01% m/m) even as the impact of the primary harvest season was felt in the prices of Farm produce (-16bps to 1.07% m/m). According to Famine Early Warning Systems Network (FEWSNET), most farming households harvested early maturing crops such as maize, millet, rice, yams, potatoes, and groundnuts in September. Nonetheless, we think the price increase in the processed food sub-basket reflects the pass-through impact of higher production costs on processed food items on account of steeper currency depreciation at the parallel market (-8.4% m/m vs August: -1.7% m/m).
Elsewhere, core inflation reversed the moderation witnessed in August as it increased by 47bps to 1.24% m/m in September (August: +0.77% m/m) in line with the increase in the prices of energy and household appliances. Specifically, the Transport (+5bps to 1.12% m/m), Furnishings & household equipment maintenance (+5bps to 1.08% m/m) and HWEGF (+1bp to 0.85% m/m) sub-baskets contributed the most to the price increase in the core basket.
On balance, we look for m/m headline inflation reading of 1.27% in October, with the high base effect from the corresponding period of 2020 translating to 30bps moderation in y/y headline inflation to 16.32%.
