The National Bureau of Statistics (NBS) just released the inflation rate for the month of Mar’18, with headline inflation moderating to 13.3% y/y. The headline number outperformed our projected 13.5% for the period, coming in 99bps lower than the rate recorded in Feb-18 (14.3%). On a month-on-month (m/m) basis, the CPI rose 0.84%, 5bps higher than 0.79% in Feb-18. The faster moderation in the rate of increase in prices remained driven by the food inflation sub-index which eased to 16.1% y/y, from 17.6% recorded in Feb-18. Also, the imported food sub-index increased 15.8% y/y down from 16.1% in Feb-18 and the core inflation index rose 11.2% y/y, a 53bps decline when compared with Feb-18’s 11.7% y/y.
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 bread & cereals, oil & fats, fruits & vegetables, coffee tea & cocoa, milk cheese & eggs and fish according to the NBS. Moderation in prices of Fuel & lubricants maintenance & repair, vehicle spare parts, and passenger transport by air also supported the core index. For the headline index, the highest increases were observed in the prices of bread & cereals, oil & fats, fruits & vegetables, coffee tea & cocoa, milk cheese & eggs and fish.
Looking ahead, we project Apr-18 inflation rate to decelerate faster to 12.5% as m/m inflation is anticipated to remain around 0.8%, underpinned by a sustained pullback in food inflation in light of 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% by Jun-18, while core inflation should decline even lower, further supporting the argument for a near-term rate cut amid the continued accretion to external reserves which is fast approaching $50bn. Overall, we expect yields to ease further going forward.