March 16, 2023/CSL Research
Headline inflation continued its upward trend in February albeit at a moderate level. Headline inflation increased to 21.91% which is 9bps higher than the 21.82% recorded in January. On a Month-on-month basis, headline inflation was down 16bps to 1.71% in February from 1.87% in January. Headline inflation numbers were largely driven by high energy costs, imported inflation (triggered by disruption in the global supply chain and Naira depreciation), and an increase in the cost of production which is passed on to end consumers. We believe the recent Naira scarcity must have increased price pressures in February. Central Bank of Nigeria (CBN) Governor Godwin Emefiele has maintained a hawkish stance to stem inflation. The CBN hiked
its key interest rate to 17.5% in January, a 600bps rate hike since May 2022.
Food inflation, a major driver of headline inflation, increased to 24.35% in February from 24.32% in January. On a month-on-month basis, the food basket was down to 1.90% compared to 2.08% in January. According to the Nigerian Bureau of Statistics (NBS), the y/y increase was attributed to an increase in the prices of some food items like Oil and Fat, Bread and Cereals, Potatoes, Yam and Other Tubers, Fish, Fruits, Meat, Vegetable, etc. We believe
the ease in fuel scarcity and the persistence of the cash crunch could be attributed to the moderation in food prices.
Core inflation was down by 32bps to 18.84% in February from 19.16% in January. Month-onmonth, the core basket grew slower by 1.06% in February from 1.82% recorded in January and 1.33% in December. The highest increases were recorded in prices of Gas, Passenger Transport by Air, Liquid Fuel, Fuels, and Lubricants for Personal Transport Equipment, Vehicles Spare Parts, Solid Fuel, etc. We note that the month-on-month decline in inflation numbers could be attributed to the ease in fuel scarcity and the Naira scarcity which slowed down economic activities, impacting demand for goods and services. Looking ahead, we project inflation will begin to moderate in the second half of the year, largely due to base effect, especially in H2-2023. Nevertheless, we still expect some price triggers.
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