Unexpected Decline in April 2021 Headline Inflation

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November Headline Inflation Rate Accelerates to 14.89% amid Sustained Rise in Food Index Brandspurng

Although marginal, the headline inflation retreated for the first time in nineteen months to 18.12% in April from 18.17% recorded in March. Our expectation shared with newswires was 18.80%. Food price inflation decreased from 22.95% y/y to 22.72%, while core (non-food) prices picked up from 12.67% y/y to 12.74% according to the NBS report.

On a m/m basis, headline inflation decreased from 1.56% in March to 0.97% in April.

Food inflation remains the key driver. The highest increases were recorded in fish, meat, oils and fats, tubers, bread, cereals, potatoes, eggs and vegetables. The rise in food prices has also been exacerbated by import restrictions on certain staples.

Despite the exchange-rate adjustments and the challenges in securing access to fx, we find relative stability in imported food prices. On a y/y basis, imported food price inflation rose slightly to 16.91% y/y from 16.86% y/y recorded in the previous month. NAFEX turnover amounted to USD1.18bn in April according to FMDQ; the inflow was USD416.5m with the CBN accounting for 21% while the non-bank corporates accounted for 41%.

The impact of the COVID-19 virus remains visible. The highest increases in core inflation were recorded in pharmaceutical products, hospital services, garments, personal transport equipment, vehicle spare parts, among others.

The NBS also tracks headline inflation by state, with the highest, 24.33% y/y, in Kogi and the lowest, 15.58% in Katsina. It is worth noting that household baskets vary across states due to different consumption patterns.

The current inflationary pressure induces macroeconomic instability and also negatively affects the welfare of households and fixed income earners. CBN’s in-house estimates show that headline inflation will remain above 17.9% in 2021.

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Persistent high inflation remains a key concern for monetary policy. At the last monetary policy committee (MPC) in March, the committee retained all parameters and reiterated its stance that inflationary pressure is mainly due to legacy structural factors across the economy and not largely associated with monetary factors. The MPC is scheduled to hold its next meeting on the 24th and 25th of May.

Our call is for a headline rate of 18.3% y/y in May.