The latest inflation report from the NBS shows a second successive decline in the headline inflation y/y, to 17.3% in March from 17.8% the previous month, due to positive base effects. (Our expectation, shared with the wire services, was 16.6% y/y.) A rather different story emerges from the m/m data, which reveal a second successive rise, from 1.5% to 1.7% in March. The report is disappointing because it highlights what we take to be the impact of supply-side factors.
Household demand remains weak: the economy has been contracting, at least until Q4 2016, and listed companies in the consumer goods space have not always been able to pass on the rise in their own imported input costs. The supply constraints have been felt most strongly in food inflation.
The NBS commentary notes sharp increases for most food staples. Among components of the core (non-food) index, the prices of housing, water, electricity, gas and other fuels, which have a 16.7% weighting in the headline measure, soared by 18.8% y/y. The commentary also detected in the data the early effects of a strengthened naira without citing the supporting evidence.
Sources: National Bureau of Statistics (NBS); FBNQuest Research
We can also see the negative influence of supply factors when we note that the composite urban index accelerated by 18.3% y/y in March, and its rural counterpart by 16.5%.
The communique following the meeting of the monetary policy committee in late March was not impressed with the m/m increases in the previous inflation report for February. It was adamant that the committee would not consider a policy rate cut without a clear trend of m/m declines in headline inflation.
We see another slowdown in the y/y headline rate in April, to 17.0% y/y.