August 15, 2024/Coronation Research

  The NBS has released its July inflation report to show
Headline rate: 33.4% y/y (34.2% in June)
            Core rate: 27.5% y/y (27.4%); and
            Food rate: 39.5% y/y (40.9%).  

• July’s headline inflation eased by -80bps to 33.4% y/y compared with 34.2% in June ’24. This was largely on the back of positive base effects. On a month-on-month basis, headline inflation eased slightly by -3bps to 2.28% from 2.31% recorded in the previous month.
• Food inflation declined by -134bps to 39.53% y/y. The highest increases were recorded in the prices of bread, cereals, oil and fat, fish, potatoes, yam, and other tubers.  On a y/y basis, imported food price inflation rose by +50bps to 36.9% y/y from 36.4% y/y recorded in the previous month. In the FX market, the NGN/USD recorded a m/m depreciation of -6.9% in the NAFEM window. It closed the month (July) at N1,608.7/USD.
• Core inflation increased by +7bps to 27.47% y/y from 27.4% y/y recorded in the previous month. Inflationary pressure was felt across housing, passenger transport by road and medical service. The housing water, electricity, gas, and other fuel segment declined by -90bps to 30.3% y/y and 1.9% m/m compared with 2.2% recorded in June ’24. The transport segment declined to 25.2% y/y, meanwhile, it increased to 2.5% m/m in July ’24.
• From state government perspectives, the NBS data shows that Bauchi state recorded the highest inflation level at 46% y/y during the period, while Borno state recorded the lowest at 28.3% y/y. It is worth noting that household baskets differ across states, reflecting the diverse consumption patterns. 
• The recent y/y slowdown in Nigeria’s headline inflation which marks the first decline in 19 months, is a cautiously positive signal. This trend suggests that the cumulative effects of the CBN’s monetary policy tightening may finally be gaining traction in the broader economy. However, it is essential to recognize that a single data point does not establish a trend, and further declines will be necessary to form a definitive view on the long-term effectiveness of these measures in combating inflation.
• The critical concern lies in translating this headline y/y decline into tangible relief for Nigerian households, especially given the recent protests over cost-of-living pressures. Inflation’s real impact is felt most acutely in the marketplace, where the cost of essential goods and services remains prohibitively high. To ensure that this nascent decline in inflation is not merely a statistical artifact but a genuine improvement in economic conditions, we need to see sustained decreases that permeate the economy in real terms.
• Although the decline is encouraging, we still see inflation remaining elevated, likely above 30% in 2024. This underscores the need for continued vigilance in monetary policy, complemented by fiscal measures that address structural inflationary pressures. The next MPC meeting is scheduled to hold on 23^rd and 24^th of September.

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