Headline Inflation Touched a New High Amid Rising Domestic & External Risks


Nigeria’s Headline inflation rate, a measure of the average change in the general price level of goods and services in the country rose to 21 months high of 12.20% y/y (from 12.13%y/y in the prior month) in the month of February 2020 according to official data released this week by the National Bureau of Statistics (NBS).

In succession, this also represents the seventh successive rise in Nigeria’s inflation rate since July 2019. This uptrend which could be attributed to the twin impact of external and domestic shocks, which caused a rise in both the Core (and All items less food) and Food inflation sub-components of the Headline inflation when measured on a year-on-year basis.

Specifically, the external shocks topped by the ravaging impact of the coronavirus epidemic (which has weakened crude oil price, Nigeria’s exchange rate, and exports earnings), strengthened the negative spillover effect of the protracted U.S. – China trade war, and Nigeria’s land border closure with neighboring countries to push both the Core and Food inflation rates to 9.43%y/y and 14.90%y/y respectively, from 9.35%y/y and 14.85%y/y in the preceding month.

The domestic shocks on the general price level can be attributed to the implementation of the new VAT regime of 7.5% (from 5% effective from February 1, 2020), weak expansion in trade and manufacturing activities (as indicated by the reduction in PMI expansion to 58.9 index points in the month of February 2020 from 59.6 index points in January), and insufficient agricultural output to meet aggregate domestic demand (due to low mechanization and lack of critical infrastructure to support commodity
movement and preservation).

Nevertheless, there was a modest decline in the month-on-month movement in the Headline inflation rate to 0.79%m/m from 0.87% in January. This came on the back of a 9bps and 12bps decline in the month-on-month Core and Food inflation rate indexes to 0.73%m/m and 0.87%m/m respectively.

This by implication suggests that price levels rose at a weaker rate between January and February 2020, compared to the trend between December 2019 and January 2020.

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Going forward, we expect the deepening negative impact of the Coronavirus epidemic on cross-border trades and domestic business activities, and exchange rate strain (due to weak external buffer) to keep the Headline inflation rate between the range 12.18% – 12.25% in the month of March 2020.