Nigeria’s annual inflation rose from 11.2% in August to 11.3% in September, though still registering below both Vetiva and Consensus estimates (11.5%) as month-on-month (m/m) inflation printed at just 0.8% (August: 1.0%), the lowest since April 2018. This month-on-month figure is comparable to the period between September 2017 and April 2018 when Nigeria experienced rapid disinflation (from 16.0% y/y to 12.5% y/y) amid average m/m inflation of 0.8%. September m/m inflation also betters recent trend—average m/m inflation of 1.1% in the prior four months—and eases concerns over Q4’18 inflation.
Tracking the headline trend, Food Inflation rose from 13.2% y/y to 13.3% y/y and fell from 1.4% m/m to 1.0% m/m. Meanwhile, Core Inflation declined in both annual (10.0% y/y to 9.8% y/y) and monthly (0.8% m/m to 0.6% m/m) terms. In fact, m/m core inflation of 0.6% is the lowest in 2018.
A better food price outlook?
Domestic food prices had been under pressure in recent months, with the disinflation in food inflation ending in July amid a rise in month-on-month inflation. Food supply has been disrupted in recent times—evidenced by the decline in agriculture GDP growth to a 25-year low in Q2’18—as violence and flooding in Nigeria’s primary food-producing region weighed on output. However, the onset of the main harvest season looks to have eased food supply worries. This change was also complemented by a moderation in imported food inflation from 1.8% m/m to 1.2% m/m. We note that global food prices are expected to remain soft for the rest of 2018, but the escalation of the U.S. trade war leaves food prices vulnerable in the medium-term.
Imminent elections still pose an inflationary threat
Nigeria’s price outlook has improved on the back of September’s figures. Recent food price pressure may be partially eased by the harvest season, and we do not expect any change to the minimum wage before the year runs out. That leaves anticipated fiscal injections as the main driver of inflation. Considering this, we note recent reports that the government has released ₦460 billion for capital projects outlined in the 2018 Budget.
Furthermore, electioneering activities can be expected to kick off soon as the final party primaries have been concluded. Also pushed by a weakening base, we still anticipate inflation to keep rising, albeit at a slower pace than before. Our October forecast has been revised to 11.3% y/y (previous: 11.8% y/y), and our average inflation forecast has been revised to 12.2% (previous: 12.4%, IMF: 12.4%).
