August 16, 2023/InvestmentOne Report
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- According to the latest CPI figures from the National Bureau of Statistics (NBS), inflation expanded further as it increased by 129bps to 24.08% y/y in July from the June reading of 22.79% y/y. The rise in inflation can be attributed to the rapid increase in food and non-alcoholic beverages by 12.47% y/y and housing water, electricity, gas, and other fuel by 4.03% y/y during the month. On a month-on-month basis, headline inflation also rose by 2.89%, 76bps higher than the 2.13% recorded in June.
- In July, there was a significant uptick in the food index, which increased by 173bps to reach 26.98% y/y, as compared to the 25.25% y/y figure observed in the preceding July. This surge in food inflation can be attributed to notable price hikes across various categories including Oil & fat, Bread & cereal, fish, potatoes, yams & other tubers, fruits, meat, vegetables, milk, cheese, and eggs.
- In a parallel manner, the core inflation metric displayed an upward trajectory, rising to a year-on-year rate of 20.47% in July. This marks a 10bps increment from the 20.27% figure observed in June. The accompanying analysis from the report underscores that the surge in core inflation can be attributed significantly to escalated prices in categories such as passenger road transport, gas, air passenger travel, medical services, and vehicle spare parts.
- Moving forward, we expect inflation to trend higher as global energy prices remain elevated and exchange rate differential widens thereby increasing costs for importing, transporting, and warehousing of required inputs. We posit that unless measures are taken to bolster the foreign exchange reserves, costs are expected rise further.
- On the monetary policy front, we expect the monetary policy committee (MPC) of the CBN to continue its policy tightening cycle to rein in stubbornly inflationary pressures.
