The National Bureau of Statistics (NBS) recently released the inflation rate for the month of May-18, with headline inflation easing to 11.6% y/y (3bps above our forecast 11.3%y/y), the 17th consecutive decline since Jan-17. The May-18 number was 84bps lower than the rate recorded in Apr-18 (12.5% y/y). On a month-on-month (m/m) basis, the CPI jumped 1.1%, a sharp uptick compared to an average 0.8% since Aug-17. The sustained moderation in the headline rate was driven by the food inflation sub-index which further eased to 13.5% y/y from 14.8% y/y recorded in Apr-18 as well as a slight moderation in the core inflation sub-index which eased 2bps to 10.7% y/y.
We note that while y/y moderation in the headline rate was sustained in the month of May, renewed pressure on m/m inflation rate which printed at 1.1% suggests that high base effect which had largely supported successive moderation in headline inflation rate is fizzling out. Additionally, Food items remained the major drivers of the general increase in prices with food items such as potatoes, yam & other tubers, bread & cereals, oil & fats, fruits & vegetables, meat, and fish printing the highest price increases, according to the NBS. Meanwhile, fuel and lubricants, motor spare parts, medical services, and books & stationaries, accounted for the key price movers of the core inflation sub-index.
Looking ahead, we expect the momentum of decline in headline inflation to further slow amid renewed pressure on m/m inflation rate which is anticipated remain above 1.0% in the month of June. Clearly, pressure on food prices is a concern as feedback effect from the herds-men crisis in Benue State, Taraba State and environ take its toll on the economy. For instance, m/m food inflation in Taraba was the highest in the May at 2.8%m/m according to the NBS. Overall, we project a further moderation in headline inflation to 11.1% in June-18. With rising risk to a further slowdown in prices in the horizon, including jitters in the political climate, rate normalization in the US and global trade uncertainties, which may pressure FX, headline inflation is expected to.