Earlier, the National Bureau of Statistics (NBS) released inflation figures for Apr-2020. Analyzing the report, the Headline inflation maintained an uptrend, increasing to 12.34% y/y, from 12.26% y/y in Mar-2020.
Notably, on a m/m basis, the headline inflation ticked upwards by 1.02% from 0.84% in Mar-2020. Explaining further, the 12 constituents of the index, including food, clothing, and others, all increased on a m/m basis. This can be attributed to supply-chain disruptions due to the COVID-19 lockdown and stockpiling.
On a segmented basis, the Food inflation sub-index increased by 15.03% y/y from 14.98% y/y in Mar-2020. In terms of monthly food inflation, the same trend was observed, rising from 0.94% to 1.18% m/m.
We believe the sustained shortfall in domestic food supply relative to demand, due to the planting season and continued closure of land borders, fueled the increases in food prices.
Elsewhere, the core inflation index inched higher by 9.98% y/y (vs 9.73% y/y in Mar-2020) and moved up from 0.80% to 0.93% m/m in April-2020. Notably, across the components of the core inflation sub-index, the highest increases were recorded in food and imported food.
Meanwhile, Energy prices increased marginally, owning to continued stability in FX rates and capped PMS prices.
In the month of May, we expect the pressure on the headline inflation rate to persist. The
fundamental drivers will remain food prices as interstate travel restriction and land border
closure, coupled with the fact that Nigeria is currently in the planting season remains part of the narrative.
Dissecting the core inflation, the pressure point remains an increase in prices of health care
products and services as well as transportation. In addition to that, the scarcity of FX and high rate at the parallel market, coupled with the global supply chain disruption will keep prices of household appliances and imported items high.
On the other hand, a decrease in PMS prices and restriction of movement in the month of May will reduce the impact on the core index.
Bearing all the above points in mind, we expect m/m inflation to tick up to 1.1% from 1.0%. In extension, we expect y/y inflation to increase from 12.34% to 12.38%.
United Capital Research