August 15, 2023/Coronation Report

The NBS has released its July inflation report to show –

Headline rate 24.08% y/y (22.79% June);
Core rate 20.47% y/y (20.06%); and
Food rate 26.98% y/y (25.25%).  

• July headline inflation increased by +129bps (when compared with the previous month) to 24.08% y/y. The significant uptick in headline inflation can be attributed to spikes in the prices of PMS on the back of the subsidy removal as well as the fx liberalization policy. It is noteworthy to recall that the NBS had indicated that the full impact of the recent policy reforms would be more evident in subsequent months.
• On a month-on-month basis, headline inflation increased to 2.89% from 2.13% recorded in the previous month.
• The food inflation (26.98%) recorded an increase of +173bps when compared with the previous month. The highest increases were recorded in the prices of bread, cereals, potatoes, yam and other tubers, fish, oil, and fat.
• On a y/y basis, imported food price inflation increased by +84bps to 19.94% y/y from 19.10% y/y recorded in the previous month.
• Core inflation increased by +41bps to 20.47% y/y from 20.06% y/y recorded in the previous month. Inflationary pressure was felt across, passenger transport by air and road, vehicle spare parts, medical services, maintenance and repair of personal transport equipment.
• The housing water, electricity, gas and other fuel segment increased by 19.93% y/y and 2.60% m/m. The transport segment also recorded an increase of 26.27% y/y and 2.80% m/m. These increases in the transport segment can be attributed to the further spike in PMS pump price to N617 per liter.
• Based on the NBS headline inflation by state, Kogi recorded the highest (28.45% y/y). Meanwhile, Borno recorded the lowest (20.71% y/y) in July ‘23. It is worth noting that household baskets vary across states due to different consumption patterns.
• Inflation continues to be driven by structural issues such as insecurity, poor logistics, and energy supply, elevated commodity prices, and exchange rate pressure, among others. To rein in inflation, the MPC hiked its policy rate by +25bps to 18.75% in its July meeting.
• The MPC is scheduled to hold its next meeting on the 25^th and 26^th of September ‘23. Another policy rate hike would not be far-fetched.

To read the full report, click here