The National Bureau of Statistics (NBS) just released the inflation rate for the month of Feb-18, with Headline inflation moderating to 14.3% y/y (faster than our projected 14.5% y/y), the 13th consecutive decline since Jan-17. The Feb-18 number was 80bps lower than the rate recorded in Jan-18 (15.1%). On a month-on-month (m/m) basis, the CPI rose 0.79%, 1bp below 0.80% in Jan-18. The faster moderation in the rate of increase in prices remained driven by the food inflation sub-index which eased to 17.6% y/y, from 18.9% recorded in Jan-18. Also, the imported food sub-index increased 16.1% y/y down from 16.3% in Jan-18 and the core inflation index rose 11.7% y/y, a 38bps decline when compared with Jan-18’s 12.1% y/y.

According to the NBS, the major items responsible for the sustained pressure on the food index, albeit at a much slower rate, were prices of bread and cereals, vegetables, potatoes, yam and other tubers, coffee tea and cocoa, milk cheese and eggs and fish. In the core sub-index, higher prices of Fuel and lubricants for personal transport equipment, vehicle spare parts, hospital services, maintenance and repair of personal transport equipment, passenger transport by air, amongst other items, accounted for the increase. For the headline index, the highest increases were observed in the prices of bread & cereals, vegetables, meat, potatoes, yam & other tubers, coffee, tea & cocoa, amongst other items.

Inflation Outlook

Looking ahead, we project Mar-18 inflation rate to decelerate faster, to 13.3%. M/M inflation is anticipated to remain around 0.8%, underpinned by a sustained pullback in food inflation, thanks to base effects from 2017, and continued stability in the FX market. Accordingly, we reiterate our view that inflation rate should come below the CBN’s target of 12% before Jun-18, further supporting the argument for a near-term rate cut. While the possibility of the Monetary Policy Committee (MPC) meeting next week for its March meeting remains unclear, the CBN is expected to hold rates unchanged in the interim. However, we expect the market yields to ease further, albeit marginally.

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