October 2018 Inflation: Easing Food Price Pressure Keeps Inflation in Check


Nigeria’s October inflation came in at 11.3% y/y, in line with the September figure and Vetiva estimate, but slightly below Consensus projection of 11.4% y/y. However, month-on-month (m/m) inflation came in lower at 0.7% (September: 0.8%). Looking across the sub-sectors, Food Inflation also came in flat at 13.3% y/y after another sharp fall in m/m food inflation to 0.8%-the lowest level in 2018.

The contraction in m/m food inflation can be attributed to the harvest season which has eased pressure on domestic food prices. In comparison, imported food inflation was flat at 1.2% m/m. The trend in food prices is a significant positive given the previous acceleration in food prices as a result of conflict-driven disruption to the food supply. Less positive is the rise in Core Inflation on both m/m (0.6% to 0.8%) and y/y (9.8% to 9.9%) terms.

October 2018 Inflation: Easing Food Price Pressure Keeps Inflation in Check - Brand Spur

A bearish inflation outlook

Despite the stickiness in recent inflation figures (six-month average: 11.3% y/y), approaching headwinds to dampen our optimism of Nigeria’s pricing environment. Firstly, election spending is expected to exert demand-pull inflation, and members of the Central Bank of Nigeria’s interest rate-setting committee have already expressed concern over excess liquidity heading into the election.

In particular, the rise in M3 (a new measure of broad money) above prudential thresholds, which poses a risk to inflation. In addition, a minimum wage hike remains likely and could lead to a wage-price spiral in the economy. Amid all of these, our expectations for the rest of the year are unchanged—11.4% y/y in November and 12.2% y/y average for 2018, but we expect inflation to trend higher in 2019, on the back of the aforementioned factors.

Inflation is calculated by looking at corresponding numbers of the Consumer Price Index (CPI). The CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services over time, relative to a base year. The current base year for the Nigerian CPI is 2009. Annual inflation for a month is computed by comparing the percentage change in the CPI figure for that month in the two comparison years.