July 19, 2022/United Capital Research

Last week, the National Bureau of Statistics (NBS) published the Consumer Price Index (CPI) report for Jun-22. It reported that headline inflation rose 88bps to 18.6% for the month, with the inflation basket expanding 1.8% m/m. Interestingly, the inflation print of 18.6% in June-2022 represents the highest level since Jan-2017. In addition, all components of the CPI basket increased. Analysing the inflation sub-indices, price pressures remained across as food inflation rose to 20.6%, following a m/m climb of 2.1% (from 2.0% in May). Also, core inflation remained elevated at 15.8% but m/m increases moderated to 1.6% (from 1.9% in May).

The surge in inflation continued to be driven by usual suspects, surging food prices, higher energy cost and consequent pass-thorough impact on prices of other commodities (for example via higher logistics cost). For example, recent price watch from the NBS shows that price of key staples such as 2kg of Wheat flour (up 34.9% y/y), 1Kg of Beans (up 37.2% y/y), 1kg of Yam tuber (up 37.9% to N372.23) and Palm oil (up 42.8% y/y). In addition, rising diesel prices (up 180.8% y/y) and impact on transportation costs (Airfares, Road Transport and Logistics) have supported the surge in core inflation. However, noteworthy to highlight, the slowdown in m/m increase in core sub-index was driven by recently stable energy prices.

Looking ahead, we remain pessimistic on inflation outlook for Nigeria. We expect food price pressures, elevated energy cost and relatively low base for inflation will keep inflation rate elevated. Given the foregoing, we project inflation rate will rise to 19.6% in Jun-2022. We believe this holds significant concerns for monetary policy outlook. We see room for another 100bps hike in the MPR over the next two Monetary Policy Committee (MPC) meetings, as they try to balance moderate economic recovery with fighting inflation fires. Lastly, fixed income investors are admonished to trade with caution as we see significant interest rate volatility over the next months.