July 18, 2022/CSL Research
The Consumer Price Index (CPI) data released by the National Bureau of Statistics (NBS) showed that headline inflation increased rapidly, up 88bps to 18.60% in June 2022. At this level, inflation is at a 65-month high (from February 2017 to June 2022).
Within this period, the closest rate was in March 2021, when the headline inflation rose by 18.17%. While a lowbase in the prior period (June 2021) also amplified the inflation rate in June 2022, consumer price pressures have remained unrelenting. In terms of drivers, food inflation remained a pressure point, as it rose by 111 bps compared to the rate reported in May, further worsened by an 85bps increase from the core basket. On a monthly basis, inflation expanded by 1.82% m/m.
At an 11-month high, food inflation has returned to the 20.0% level, as it printed 20.60% in June. On a m/m basis, the food basket increased by 2.05% from 2.01% in May. We link the uptick in the food index to the negative pass-through from higher logistics and haulage costs. For context, the transport inflation, which has a correlation of c.75% with food inflation, also touched a 65-month high of 16.97%, reflecting higher AGO price and higher than normal PMS pump price across the country amidst an intermittent fuel scarcity.
This is further worsened by seasonality as low food production characterizes the current plantingseason. On the other hand, core inflation rose by 85 bps to 15.75% in June, when compared to 14.90% recorded in May. Monthly, the core basket increased by 1.56% from 1.87% in May.
The drivers of the m/m moderation remain unclear as noticeable price pressures were recorded in 90.2% of the core inflation subcomponents. In fact, elevated energy prices – the main driver of core inflation has remained unabated since the Russia-Ukraine war.
We expect inflationary pressures to persist in the near term, at least until the early harvest season, which we do not expect to offer much respite. In February, a few discos were allowed to review tariffs. There is a chance that another review will happen before the end of the year, and this will increase the pressure on core inflation. Again, with agitations from various petroleum stakeholder unions rising, there may be an increase in pump price of petrol from the current N165/litre, though we rule out a complete deregulation.
We also expect inflation to rise further in the month of July due to increased prices during the Sallah festivities in July. Meanwhile, the MPC is set to meet today and tomorrow, and we believe
the latest inflation figure will likely provide sufficient condition to maintain its hawkish stance which began in May. At the last MPC meeting, the CBN raised the MPR by 150 bps to 13.00%.
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