JUNE 2018 INFLATION: DATA REACTION & OUTLOOK AS NIGERIA’S INFLATION RATE MODERATES TO 11.2% Y/Y

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The National Bureau of Statistics (NBS) today released the inflation rate for the month of Jun-18, with headline inflation easing to 11.2% y/y (1bps above our forecast 11.1%y/y), the 17th the consecutive decline since Jan-17. The Jun-18 number was 38bps lower than the rate recorded in May-18 (11.6% y/y). On a month-on-month (m/m) basis, the headline CPI increased by 1.24% in Jun-18, up 15bps from the rate recorded in May-18. The sustained moderation in the headline rate was driven by the food inflation sub-index which further eased to 13.0% y/y from 13.5% y/y recorded in May-18 as well as moderation in the core inflation sub-index which eased 32bps to 10.4%y/y.

Read: INFLATION DROPS TO 11.23% IN JUNE 2018; 0.37% LOWER THAN MAY 2018 RATE

We note that while y/y moderation in the headline rate was sustained in the month of June, sustained pressure on m/m inflation rate which printed at 1.24% suggests that high base effect which had largely supported successive moderation in headline inflation rate is gradually fizzling out. Additionally, Food items remained the major drivers of the general increase in prices with food items such as potatoes, yam & other tubers, bread & cereals, vegetables, milk, cheese & egg, fruits, meat, oil & fat, and fish printing the highest price increases, according to the NBS. Meanwhile, fuel and lubricants, garments, book & stationaries, dental services, tobacco and vehicle spare parts, accounted for the key price movers of the core inflation sub-index.

Inflation Outlook

Looking ahead, we expect the momentum of decline in headline inflation to further slow amid sustained pressure on m/m inflation rate which is anticipated remain above 1.0% in the month of July. Clearly, pressure on food prices remains a concern as feedback effect from the farmers-herders crisis in food-producing northern part of the country continues to impact on crop and livestock supply. To this end, we highlight the uptick in m/m food inflation (to 1.6% in Jun-18) for a fourth consecutive month, after touching 0.85% in Feb-18. Overall, with rising risk to a further slowdown in prices in the horizon, jitters in the political climate, rate normalization in the US and global trade uncertainties, which may pressure FX, we expect headline inflation to resume an uptrend as early as July-18. Thus, we project a slight increase in headline inflation to 11.3% in July-18.