Headline Inflation rose to 12.20% from 12.13% in January 2020. Month-on-month (MoM), the index rose at a slower pace of 0.79% compared with 0.87% recorded in January 2020. Notably, the primary composite of the index; food and the core inflation recorded a YoY increase for the period. The food index increased YoY to 14.90% from 14.85% in January 2020, while MoM, it grew at a slower pace of 0.87% from 0.99% in January 2020. Core index also rose similarly, YoY to 9.43% from 9.35% in January 2020, and MoM, it grew to 0.73% from 0.82% in January. Year-to-date, headline inflation averaged 12.17%.
Analysis
Headline inflation grew by 7bps to 12.20% driven by YoY increases in food and core inflation. Average food prices increased YoY by 5bps to 14.90% in February 2020, due to the rise in prices of food and non-alcoholic beverage, as well as an increase in the prices of imported food items. Food and non-alcoholic beverage sub-index rose YoY by 6bps, from 14.76% in January 2020 to 14.82% in February 2020. MoM, the sub-index declined to 0.87% from 0.98% in January 2020. While we believe that a base effect drove the YoY increase, MoM, we think that the general price increases that followed the sustained land border closure waned, hence, overshadowed the impact of VAT increment on prices. Thus, the decline in MoM inflation. The imported food sub-index increased YoY by 4bps to 16.14% in February 2020, also contributing to the YoY increase in the food index, but MoM, the sub-index was flat at 1.26%. According to the Food and Agriculture Organisation (FAO) of the United Nations, the FAO food price index rose YoY by 8.10% but declined MoM by 1.00% which was in tandem with the imported food sub-index.
Core inflation grew by 8bps to 9.43% in February 2020 notably driven by increases in housing water, electricity, gas and other fuel; clothing and footwear as well as transport. All composites of the core index recorded YoY increases. We believe that the primary driver of the hikes is as a result of a low base and partly the VAT increment which came into effect in February 2020 as well as increased system liquidity.
Expectation
We expect an uptrend in inflation in the coming months on the back of the proposed adjustment in electricity tariff. Also, we expect the disruption in the global supply chain occasioned by the coronavirus pandemic to exert price pressures on commodities, particularly on the imported products. While the disease outbreak has so far been contained in Nigeria, a surge in reported cases would also exert upward pressure in prices due to panic buying.
Food inflation increased year-on-year by 5bps to 14.90% in February 2020 from 14.85% in January 2020. Month-on-month, the index rose to 0.87%, relative to 0.99% recorded in January 2020. The increase recorded in the index were contributed by price increases in bread & cereals; fish; meat; vegetables; and oil & fats.
Core inflation increased by 8bps year-on-year to 9.43% in February 2020 from 9.35% in January 2020. Month-on-month, the index increased to 0.73%, from 0.82% in January 2020. The major price increases were recorded in Catering services; Non-durable household goods; Passenger transport air; Vehicle Spare Parts; Pharmaceutical products; Repair of furniture; Water supply; Carpet and other floor coverings; Major household appliances; Dental services; Maintenance and repair of personal transport equipment; and Hospital services.
