November 15, 2023/Cordros Report
The National Bureau of Statistics (NBS) revealed that pressures on domestic prices intensified in October, as the lingering challenges stoking prices remained intact amid the impact of the low base effects from the prior year. Accordingly, consumer prices are at their highest level since August 2005 (28.20% y/y), rising by 61bps to 27.33% y/y. Analysing the breakdown provided, we highlight that food prices (+88bps to 31.52% y/y) remain at an 18-year high while the core inflation notched higher by 73bps to 22.58% y/y. The outturn is 21bps lower than Cordros’ estimate (27.54% y/y) and 37bps below Bloomberg’s median consensus estimate (27.70% y/y). However, on a month-on-month basis, headline inflation eased by 37bps to 1.73% (September: 2.10% m/m), translating to the second consecutive month of moderation.
Food prices maintained their slowdown in October, moderating by 54bps to 1.91% m/m (vs September: 2.45% m/m) – the lowest print since February (1.90% m/m). We attribute the moderation in food prices to the seasonal increase in food supplies in line with the main harvest season, as the harvested food crops reach both the rural and urban markets. Aside the main harvest season, we believe that the decline in global food prices have started to filter into domestic food prices. According to the FAO Food Price Index (FFPI), global food prices declined further in October (-0.6% m/m to 120.60 points) to its lowest level since March 2021. As a result, prices tempered across the sub-baskets – farm produce (-17bps to 1.96% m/m), processed food (-65bps to 1.90% m/m), and imported food (-41bps to 2.30% m/m) – in October. Meanwhile, on a year-on-year basis, food inflation increased by 88bps to 31.52% y/y, driven largely by the low base effect from the corresponding period last year.
Likewise, the non-food inflation eased by 63bps to 1.42% m/m, driven by the slower increases in Education (-48bps to 1.16% m/m), Transport (-26bps to 1.35% m/m), and Utilities (-19bps to 1.68% m/m) sub-baskets. However, on a year-on-year basis, the non-food prices increased by 59bps to 22.69% y/y – tracking higher than the 10M-23 average (20.54% y/y). Aside from the unfavourable statistical effect from the prior year, we highlight that (1) the persistent currency pressures and (2) higher diesel prices continue to exert pressure on non-food prices. Buttressing (1) above, the naira remained on the back foot against the dollar in October (-13.5% m/m at the parallel market to an average of NGN1106.48/USD | -5.1% at the Nigerian Autonomous Foreign Exchange Market to NGN797.43/USD average). Elsewhere, the core inflation (All items less farm produce and energy) moderated by 83bps to 1.39% m/m in October (September: 2.22% y/y). However, on a year-on-year basis, it increased by 73bps to 22.58%.
Outlook
We expect the main harvest season to have a feed-through impact in improving food supplies in November, albeit not large enough to temper food prices relative to the prior year significantly. Notably, we expect a limited and below-average increase in food supplies as we understand that the (1) prolonged dry spells during the planting season in the north, (2) delays in the onset of rainfall and (3) increased levels of banditry and kidnapping to have likely limited the increase in food supplies from the primary harvest season. In addition, we anticipate an increase in the demand for food produce ahead of the festive period in December amid still-high transport costs. Consequently, we forecast a 1.87% m/m increase in food prices in November, translating to 32.13% y/y.
We expect the pressure on non-food inflation to remain intact, given the existing factors stirring up prices. Notably, we highlight that currency pressures will be the major trigger for cost pressures in November. Moreover, lingering increases in gas and diesel prices also pose additional downside risks to near-term price pressures. Accordingly, we expect the core inflation to rise by 1.65% m/m.
All told, we expect the headline inflation to settle at 1.79% m/m and 1.86% m/m in November and December, translating to a y/y reading of 27.83% in November and a 28.02% y/y peak in December.
