In the week ahead, the Nigerian National Bureau of Statistics (NBS) is expected to publish the data on Nigeria’s inflation rate for July 2020. Ahead of the official release of the Consumer Price Index (CPI) data by the NBS, we have taken our time to analyse the possible drivers of the key macroeconomic indicator – the Headline Inflation rate, with the intention of projecting what the inflation rate for the month will print at.
Based on our analysis, we expect the Headline inflation rate – the measure of the average change in the general price level of goods and services (food and non-food items) in the economy to settle at 12.82%y/y from 12.56%y/y in June 2020, driven jointly by pressure on both the Core inflation (i.e. non-food sub-component) and Food price sub-component of the Headline inflation index
We expect the Core inflation sub-component which measure the average change in the general price level of non-farm items and services to be mainly pressured by the systemic devaluation of the Naira/USD official exchange rate (by the CBN) in the month to ₦381/$1, compared to ₦361/$1 in the prior month.
As such, we project that the Core inflation rate will print at 10.28%y/y, compared to 10.13%y/y in the preceding month, as importers push the burden of naira devaluation to the final consumer in the form of the high cost.
Besides, we expect the exchange rate pressure on the Core inflation subcomponent (in July) to be reinforced by the high cost of domestic means of transportation brought about by the further easing of the economic lockdown directive of the federal government, which aided improved economic activities during the month.
For the Food inflation rate sub-component, we expect the index to print at 15.52%y/y, compared to 15.18%y/y in the preceding month. The 34bps increase in Food inflation we believe will be largely driven by the noticeable spike of fare on cargo logistics (mostly, land) and human transportation (both intra and interstate movement) in the month, as economic activities gained some momentum due to further easing of movement restriction and the usual Sallah festive pressure.
On the Month-on-Month basis (m/m), we expect the headline inflation rate to climb by 4bps to 1.25%m/m, driven jointly a 5bps increase in the Core inflation rate to 0.91%m/m and an 8bps increase in Food price inflation to 1.56%m/m.