Headline inflation rises to 12.56%; 27-month high, back to pre-April 2018 levels

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How Consumers View Inflation
How Consumers View Inflation

National Bureau of Statistics (NBS) released inflation data for June 2020 this morning. Annual Headline inflation print 12.56% from 12.40% in May 2020. MoM, the index rose at a faster pace to 1.21% in June 2020 from 1.17% in May 2020. Food inflation surged YoY to 15.18% from 15.04% in May 2020, and MoM, the index increased to 1.48% in June 2020 from 1.42% in May 2020.

Core inflation grew YoY to 10.13% from 10.12% in May 2020, but MoM, the index grew slowly by 0.86% in June 2020 from 0.88% in May 2020. Overall, twelve months and year-to-date average Headline inflation stood at 11.90% and 12.32%, respectively.

Headline inflation rises to 12.56%; 27-month high, back to pre-April 2018 levels - Brand Spur

Analysis

The rise in food prices majorly drove the 15bps increase in Headline inflation from 12.40% to 12.56%. Food prices rose YoY by 14bps to 15.18% in June 2020. We believe that the VAT increase, supply chain disruption, as well as weak storage infrastructure and poor road network, has continued to pressure food prices.

We also believe that the land border closure in August 2019 amid limited domestic capacity to meet demand continued to be a significant factor. Also, transportation cost, which grew from 10.09% to 10.41% in June 2020 impacted food prices.

Globally, food prices also rose. According to the FAO Food Price Index, global food prices increased by 2.40% in June 2020. Similarly, the imported food index grew by 5bps from 16.26% to 16.31% in June 2020.

Away from food inflation, core inflation grew by 1bps to 10.13% in June 2020. The primary driver of core inflation was medical and transport cost. Health inflation increased from 10.66% to 11.09% in June 2020, while transport cost grew to 10.41% in June 2020. We believe that price increases in health and transportation were systemic, given the COVID-19 pandemic.

Headline inflation rises to 12.56%; 27-month high, back to pre-April 2018 levels - Brand Spur

Expectation

In our previous report, we expected June inflation to grow though at a slower pace due to the gradual easing of the lockdown and anticipated increase in productivity. Surprisingly, inflation rose to a 27-month high. That said, our inflation outlook in the coming months is negative. We think that the upward review of the petrol price as well as the FX convergence move by the CBN will impact inflation in the coming months.

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However, we believe that the advent of the harvest season will bode well for food prices. That said, we do not expect a material pivot from the CBN dovish bias. Thus, we expect the CBN to maintain the status quo in the monetary policy levers at the MPC meeting scheduled to hold on July 22-23, 2020.

Food inflation increased year-on-year by 14bps to 15.18% in June 2020 from 15.04% in May 2020. Month-on-month, the index rose to 1.48%, relative to 1.42% recorded in May 2020. The increase recorded in the index were contributed by price increases in bread & cereals; fish; potatoes; meat; vegetables; oil & fats; and fruits.

Core inflation increased by 1bps year-on-year to 10.13% in June 2020 from 10.12% in May 2020. Month-on-month, the index increased to 0.86%, from 0.88% in May 2020. The major price increases were recorded in medical services; hospital services; motor cars; passenger transport by road; bicycles; motorcycles; pharmaceutical products; paramedical  services; maintenance and repair of personal transport equipment; vehicle spare parts; and other services in respect of personal transport equipment.

Culled From WSTC