The National Bureau of Statistics (NBS) just released the inflation rate for the month of Apr-18, with headline inflation easing to 12.5% y/y (in line with our projection for the period 12.5% y/y), the 15th consecutive decline since Jan-17. The Apr-18 number was 86bps lower than the rate recorded in Mar-18 (13.3% y/y). On a month-on-month (m/m) basis, the CPI rose 0.83%, a bps lower than 0.84% in Mar-18. The sustained moderation in the rate of increase in general prices across the country remained driven by the food inflation sub-index which eased to 14.8% y/y, from 16.1% recorded in Mar-18. On the other hand, the imported food sub-index increased 16.2% y/y up from 15.8% in Mar-17 while the core inflation index rose 10.9% y/y, 26bps lower than 11.2% y/y recorded in Mar-18.
While we are of the view that high base effect from elevated food prices in the prior year accounted for the sustained moderation in headline inflation, the major items responsible in the food index included, potatoes, yam & other tubers, bread & cereals, oil & fats, fruits & vegetables, coffee tea & cocoa, according to the NBS. Moderation in prices of Fuel & lubricants maintenance & repair, vehicle spare parts, and garments, clothing materials & other articles of clothing also supported the core index. For the headline index, the highest increases were observed in the prices of potatoes, yam & other tubers, bread & cereals, oil & fats, fruits & vegetables, coffee tea & cocoa, milk cheese & eggs and fish.
Looking ahead, we expect the recent deceleration in headline inflation to be sustained, supported by a continued pullback in food inflation, thanks to base effects from 2017 and continued stability in the FX market. However, the feedback effect from the herds-men crisis in Benue State, Taraba State and environ, is disturbing, especially on food inflation. To this end, we highlight the marginal uptick in m/m food inflation (to 0.91% in Apr-18) for a second consecutive month, after touching 0.85% in Feb-18. Nevertheless, we project May-18 inflation rate to decelerate faster, to 11.3% (below the CBN’s target of 12.0%), with m/m inflation rate anticipated to steady at 0.82%m/m. At 12.5%, Nigeria’s real interest rate (MPR less headline inflation) improved to 1.5% from 0.7% in Mar-18, the first time in c.2 years of negative real interest rate. While this indicates a further repricing in the yield environment, recent aggressive liquidity mop-up exercise by the CBN may off-set sharp moderation in yields.