April 17, 2023/InvestmentOne Report

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• According to the latest CPI figures from the National Bureau of Statistics (NBS), inflation rose for the third consecutive month as it increased by 13bps to 22.04% y/y from the February reading of 21.91% y/y. The core inflation was the primary driver of the surge in headline numbers, even as food inflation recorded a slight uptick. Month-on-month, headline inflation also rose by 1.86%, 15bps higher than the 1.71% recorded in February. 

• The breakdown of the report revealed that the food sub-basket remained elevated, but at a sluggish pace. The heavily weighted index inched higher by 10bps to 24.45% y/y from 24.35% y/y in the prior month. According to the report, food costs during the month shot up due to higher prices of major food staples including oil and fat, bread and cereals, potatoes, and yams. We posit that food prices remained sticky on the back of increasing input costs, transport constraints, and lingering insecurity in major food producing regions. From a month-on-month perspective, food inflation trended faster to 2.07%, 18bps higher than the 1.90% recorded in February.  
• Elsewhere, core inflation recorded a similar upward trend as the less volatile index soared to 19.86% y/y, a 102bps rise from the previous month’s figure of 18.84% y/y. Additionally, on a month-on-month basis, the sub-index rose by 1.84%, a 78bps increase from the previous month’s figure of 1.06%. According to the report, the rise in the core index was underpinned by the high prices of gas, increase in the price of transportation equipment and costs, and the occasional petrol shortages in the country.  
• Looking ahead, we expect a consistent upward trend in consumer prices over the short to medium term. This is due to unabating security challenges, poor road and transportation network, elevated energy cost, the rise in global oil prices, foreign exchange pressures on imported goods and the increasing likelihood of fuel subsidy removal. In terms of policy, we anticipate that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will continue to adopt a hawkish stance, as indicated at their recent policy meeting.  
  

• However, we expect further tightening to be implemented at a slower pace to moderate inflationary pressures. Nevertheless, we maintain our view that the primary drivers of rising inflation in Nigeria are supply-side factors that may not be very responsive to monetary policy. Therefore, while monetary policy measures can be used to control inflation, addressing supply-side issues such as insecurity, infrastructure deficits, and weak production capacity may be necessary to achieve more sustained inflation control.