Data from the National Bureau of Statistics (NBS) disclosed that Nigeria’s consumer inflation rose by 36bps to 11.61% y/y in October, representing a 17-month high. The rise in the headline inflation was driven largely by an increase of 58bps in food inflation (14.09% y/y compared to 13.51% y/y in September), offsetting the marginal decline in core inflation (down 7bps to 8.88% y/y in October).
We believe the increase in food inflation was on the back of the continued closure of the border which impacted on food prices. Notably, the data revealed that the highest increases in the food sub-index were recorded in cereals, fish, meat, oils and fats-which were hitherto imported/smuggled. Accordingly, the supply gap emanating from the closure of the border amidst the inability of local producers to satisfy local demand pressured prices higher.
On a month on month basis, there was a synchronized movement in both headline inflation and food inflation, rising by 3bps apiece to 1.07% and 1.33% in October. Core inflation on the other hand moderated by 15bps to 0.74%.
We believe the continued moderation in core-inflation was largely supported by the stability in the foreign exchange market as well as the sustained decline in the average price of Premium Motor Spirit (PMS) – the NBS reported that the average price paid by consumers for premium motor spirit (petrol) decreased by 1.19% y/y and 0.04% m/m to N145.48 in October 2019 from N145.53 in September 2019.
In our opinion, the decision by the Federal Government to shut the borders completely will continue to hurt commodity prices given the huge supply gap in the production of major staples. Looking ahead, we highlight that the expected increase in VAT rate will put further pressure on the demand side, supporting the upward movement in the elevated price index. Overall, we do not expect a further easing in monetary stance from the CBN due to structural challenges, rather we envisage the implementation of a tighter monetary policy stance in the near-term.