14 Mar NIGERIA | Economy | Inflation | 14-Mar-2018 | Elixir Research
Dear Valued Investor,
Headline inflation rate slows 14.33% in February 2018
The National Bureau of Statics earlier today published the February 2018 Inflation data, which showed a further moderation in the rate of increases in the consumer price index by 14.33% year-on-year (y/y), from 15.13% y/y in January. Month-on-month (m/m), the increase in the headline inflation rate was somewhat flat at 0.80%. The inflation slowdown is the 13th consecutive moderation. We note that the y/y slowdown was faster than 14.60% consensus estimate (compiled by Bloomberg).
Food inflation increased at a slow rate of 17.59% y/y, down by 1.33% from 18.92% y/y in January, while the m/m trend was mostly flat at 0.85% compared with 0.87% in January.
Core inflation rate moderated to 11.70% y/y, down 0.40% from 12.10% in January. However, the m/m reading of 0.75% showed a higher inflationary pressure as it rose faster than the 0.68% reported in January.
The continued slowdown in the increases in the CPI is clearly positive for the economy, corporate earnings and sentiments generally though this does not translate into higher purchasing power.
Furthermore, the slowdown supports the case for a reduction in the monetary policy rate (MPR) from 14%, though we doubt the possibility of it happening given the need to maintain FX stability and the weak loop the MPR has on lending rates.
As we progress into the second half of 2018, we estimate inflation rate at about 11% which combined with the refinancing of local debt, (about ₦480 billion worth of T-bills is to be redeemed by the end of Q2 2018) could compress fixed income yields. That said, a possible outflow of foreign portfolio investors in H2’18 as political risk heightens could cap yield compression.
In all, the inflation outlook is positive given that we expect further compression, though pressure points from the lingering scarcity of PMS appear as a risk, the weight of the food basket in the inflation component continues to mask this risk. The average PMS Price in February was down by 11% m/m to ₦173 per liter while it rose by 15% on a y/y basis.