September 17, 2024/Coronation Research

  The NBS has released its August inflation report to show
Headline rate: 32.2% y/y (33.4% in July)
            Core rate: 27.6% y/y (27.5%); and
            Food rate: 37.5% y/y (39.5%).  

• In line with the direction of our forecast, August’s headline inflation moderated by 125bps to 32.2% y/y compared with 33.4% in July ’24. This marks the second consecutive month of decline in headline inflation. On a month-on-month basis, headline inflation eased slightly by -6bps to 2.2% from 2.3% recorded for the previous month.
• Food inflation declined by 201bps to 37.5% y/y. The highest increases were recorded in the prices of bread, cereals, oil and fat, tea, potatoes, yam, and other tubers. However, imported food inflation rose by +140bps to 38.3% y/y from 36.9% y/y recorded in the previous month.
• Core inflation increased by +12bps to 27.6% y/y from 27.5% y/y recorded for the previous month. Inflationary pressure was felt across housing, passenger transport by road and medical services. The housing water, electricity, gas, and other fuel segment declined by -130bps to 28.1% y/y and 1.9% m/m in August ’24. The transport segment increased to 25.7% y/y and 2.7% m/m in August ’24.
• From state government perspectives, the NBS data shows that Bauchi state recorded the highest inflation level at 46.5% y/y during the period,  while Imo state recorded the lowest at 28.1% y/y. It is worth noting that household baskets differ across states, reflecting the diverse consumption patterns.
• The sustained decline in headline inflation for August was largely driven by a reduction in food inflation, attributed to the seasonal effects of the ongoing harvest period. However, it is worth noting that the recent review of PMS price alongside flooding in some food-producing regions could potentially reverse the current disinflationary trend.
• In our view, this underscores the need for continued monetary and fiscal measures to address structural issues such as insecurity in food-producing states, poor road networks, poor storage facilities, and infrastructural deficits.
• Given the recent inflation trajectory, we anticipate that the Monetary Policy Committee will likely maintain the benchmark policy rate at 26.75% in its next meeting which is scheduled to hold on 23^rd and 24^th of September ’24.
• Looking ahead, inflation remains elevated, likely above 30% in 2024.