After moderating to a 43-month low of 11.02%y/y in Aug-2019, the direction of the headline inflation rate turned northwards, spiking to 11.85%y/y in Nov-2019. This was as the Nigerian Government ordered the complete shutdown of all land borders, to check activities of smugglers, which had kept the local price of staple foods relatively low.
Ahead of the publication of the Dec-19 inflation report, we expect the inflation rate to trend northwards to 12.1% due to the border closure. Also, increased spending linked to the year-end festivities is likely to pressure general price level northwards.
Looking into 2020, the headline inflation rate is likely to climb in H1-2020, even if m/m inflation moderates from 1.0% to 0.8%. The structural issue that may sway the increase remains tighter conditions around all land borders. Also, possible implementation of minimum wage and cost-reflective electricity tariffs in Q1-2020, as well as monetary expansion by the CBN during the period, are negative pressures to watch. As such, we estimate headline inflation to peak at 12.16% in H1-2020 and potentially moderate to an average of 11.06% in H2-2020. This is, however, in the absence of further structural changes that may trigger a fresh uptick in m/m inflation. In all, we expect headline inflation rate to average 11.9% in 2020.
United Capital Research