The NBS has released its May inflation report to show
Headline rate: 34% y/y (33.7% in April)
          Core rate: 27% y/y (26.8%); and
          Food rate: 40.7% y/y (40.5%).

June 19, 2024/Coronation Research

• May’s headline inflation increased by +26bps (when compared with the previous month) to 34% y/y.
• Meanwhile, on a month-on-month basis, headline inflation eased by -15bps to 2.1% from 2.3% recorded in the previous month. Notably, month-on-month headline inflation maintained a downward trend for the third consecutive month since February ’24, partly attributed to the ongoing restrictive monetary stance of the CBN.
• Food inflation (40.7%) recorded an increase of +13bps when compared with the previous month. The highest increases were recorded in the prices of bread, cereals, oil and fat, meat, fish, potatoes, yam, and other tubers. On a y/y basis, imported food price inflation increased by +80bps to 34.8% y/y from 34% y/y recorded in the previous month. In May, the NGN/USD recorded a -6.8% m/m depreciation in the NAFEM window.
• Core inflation increased by +20bps to 27% y/y from 26.8% y/y recorded in the previous month. Inflationary pressure was felt across passenger transport by road, medical services, housing, and medical service. The housing water, electricity, gas, and other fuel segment increased to 29.6% y/y but declined to 2.1% m/m compared with 2.4% in April ’24. The transport segment also recorded an increase of 25.6% y/y and 2.4% m/m.
• From state government perspectives, the NBS data shows that Bauchi state recorded the highest inflation level at 42.3% y/y during the period, while Borno state recorded the lowest at 26% y/y. It is worth noting that household baskets vary across states due to different consumption patterns.
• At the last MPC meeting, the committee raised policy rate by +150bps to 26.25%. The next MPC meeting is scheduled to hold on July 22nd and 23rd of July ‘24. We anticipate a moderate hike (+50bps to +100bps) or a hold stance.
• In addition to monetary policy tightening, fiscal policy interventions such as prudent public spending and targeted subsidies can help alleviate supply-side constraints and mitigate inflationary pressures. Furthermore, implementing structural reforms to address infrastructure deficits, enhance agricultural productivity, and improve the business environment can boost supply capacity, thereby dampening inflationary forces in the long term. Additionally, fostering a stable exchange rate regime will contribute to a more effective inflation-targeting framework.
• Looking ahead, we expect Nigeria’s headline inflation to remain above 30% in the second quarter of this year