June 19, 2024/Cordros Report
Based on the CPI and inflation report released by the National Bureau of Statistics (NBS), consumer prices maintained an upward trend for the 28th consecutive month in May 2024. Headline inflation rose by 26bps to 33.95% y/y in May (April: 33.69% y/y). Notably, the pace of increase was slower than the previous month (April: +49bps), indicating that inflation may have climaxed and may moderate in June. The inflation print was 51bps and 15bps lower than Cordros’ (34.56% y/y) and Bloomberg’s median consensus (34.10% y/y) estimates, respectively. Further out, food inflation rose by 13bps to 40.66% y/y (April: +40.53% y/y), while core inflation increased by 20bps to 27.04% y/y (April: +26.84% y/y). Interestingly, month-on-month inflation slowed for the third consecutive month by 15bps to 2.14% (April: +2.29% m/m) as lower naira volatility, off-season harvests and reduced energy prices primarily supported a slower pace of inflation.
Food inflation decelerated for the third consecutive month in May, dropping by 22bps to 2.28% m/m (April: +2.50% m/m). This decline aligns with the off-season harvest and decreased logistics costs, which supported a decline in food prices. Moreover, the reduced volatility of the naira positively impacted the prices of imported food items. Overall, prices fell across the sub-baskets – Farm produce (-15bps to 2.27% m/m), Processed foods (-24bps to +2.29% m/m) and Imported food (-22bps to 2.09% m/m). On a year-on-year basis, however, food inflation increased by 13bps to 40.66% in May (April: +40.53% y/y).
Similarly, core inflation (excluding food and energy prices) remained elevated in line with the depreciation of the naira in May (c.13.3% m/m to an average of NGN1,435.87/USD) as it rose by 20bps to 27.04% y/y. On a month-on-month basis, however, it moderated by 18bps to 2.20% (April: +2.01% m/m), with the slowdown attributable to the reduction in energy prices and the general cost of doing business. Specifically, prices decreased across several sub-baskets – Alcoholic Beverages and Tobacco (-30bps to 2.12% m/m), Restaurants and Culture (-29bps to 0.52% m/m), Furnishings & Household Equipment Maintenance (-28bps to 1.40% m/m), and Utilities (-27bps to 2.09% m/m). Conversely, prices increased in the Clothing and Footwear (+35bps to 1.53% m/m), Miscellaneous Goods and Services (+33bps to 1.85% m/m), and Transport (+24bps to 2.38% m/m) sub-baskets.
Outlook
Following the persistent decline in the month-on-month inflation (three months in a row) and the slower increase in the annual inflation print, we suspect that headline inflation may have peaked and could ease in June, albeit at a moderate pace. Additionally, our projection of disinflation is hinged on the expectation of a further decline in the month-on-month inflation for June, supported by tamer currency volatility amid the CBN’s sustained efforts to support the naira and a slower increase in energy prices, particularly diesel.
Specifically for food inflation, we expect the off-season harvest and lower logistics costs to once again support a slower rise in food prices. However, we note that the off-season harvest has been below average. This, coupled with festive-induced demand following the Eid-el-Kabir celebrations in June, presents upside risks that could potentially moderate these gains. Consequently, we project food inflation to settle at 2.35% m/m in June, with the year-on-year food inflation easing slightly to 40.60%.
Elsewhere, we expect a slower currency depreciation and lower operational costs, partly supported by a decline in energy prices, to underpin lower price increases for non-food items. As a result, we expect core inflation (all items less farm produce) to come lower at 1.75% m/m, leading to a 3bps decline in the y/y core inflation to 26.82%.
Overall, we anticipate headline inflation to print 2.09% m/m in June, with the year-on-year rate estimated at 33.90%, a 5bps moderation from the previous month (May: +33.95% y/y).
Figure 1: Headline Inflation – Historical and Forecast (y/y)
