September 16, 2022/CSL Research
The Consumer Price Index (CPI) data released by the National Bureau of Statistics (NBS) showed that headline inflation increased by 88bps to 20.52% in August 2022, in line with our forecast (CSL forecast: 20.54%). Like the narrative in July, inflation is at its highest point in 17 years (from October 2005 to August 2022). In terms of drivers, food inflation remained a pressure point, as it rose by 110 bps, further worsened by a 94bps increase from the core basket. On a month-on-month basis, headline inflation moderated to 1.77% m/m in August from 1.82% m/m in July 2022.
Food inflation has remained above 20.0% since June, reaching 23.12% in August and is also currently at a 17-year high. On a m/m basis, the food basket grew by 1.98% compared to 2.04% in July. The m/m marginal decline may be reflective of the global downtrend in food prices, as the United Nations’ Food and Agriculture Organization noted a further reduction in global food prices in August 2022 due to lower wheat and vegetable oil prices. It also coincides with the period when the main harvest season begins in the country. However, we continue to link the high domestic food prices to the negative pass-through from higher logistics and haulage costs. For context, transport inflation, which has a correlation of c.75% with food inflation, touched a 15-year high of 18.24%, reflecting higher AGO price and higher PMS pump price as many marketers continue to sell above the approved pump price across the country. On the other hand, core inflation rose by 94bps to 17.20% in August. Month-onmonth, the core basket grew by 1.59% compared to 1.75% in July. The highest increases were recorded in prices of gas, liquid fuel, solid fuel, passenger transport by road, passenger transport by air, fuel and lubricants for personal transport equipment.
Looking ahead, we expect inflationary pressure to persist. We forecast headline inflation to reach 20.96% in September 2022. While we expect a slight moderation in food inflation with the commencement of the harvest season, we expect core inflation to remain pressured. Petrol marketers continue to sell PMS above the regulatory price of N165/litre and the cost of deregulated petroleum products such as diesel and Jet A1 remains high, indicating that the pressure on core and food inflation arising from related transport costs will remain. We also expect the continuous devaluation of the Naira at the parallel market to remain a pressure point. With the current realities, we expect the focus of the September MPC meeting to remain around inflation as we expect the better than expected Q2 GDP growth of 3.54% to give the committee some comfort around growth. That said, we retain our view that the major drivers of inflation cannot be controlled by rate hikes as they are largely supply driven. Since the CBN changed to a hawkish position, consumer prices have remained elevated.
Click here to read full PDF copy of report
