The latest inflation report from the NBS shows the first decline in headline inflation for 13 months, to 17.8% y/y in February from 18.7% the previous month. (Our expectation, shared with the wire services, was 17.3% y/y.) The decline was widely flagged, given positive base effects. Core inflation y/y slowed for the third successive month, to 16.0% from 17.9%. The disappointment was the pick-up in food price inflation, to 18.5% y/y from 17.8%.
CBN Governor Emefiele reminded an audience in Lagos at the weekend that the acceleration in inflation had been driven by supply-side shortages, notably of fx, fuel and electricity. We would add that the data may now be also reflecting squeezed household demand. Listed companies in the consumer goods space have not always been able to pass on the rise in their own imported input costs.
The NBS commentary notes that some of the highest y/y increases were seen in electricity, and fuels and lubricants for personal transport.
Sources: National Bureau of Statistics (NBS); FBNQuest Research
A relevant question is whether the slowdown in the headline rate will have an impact on the meeting of the monetary policy committee (MPC) the week after next. The committee could dwell upon the sharp decline in the core measure, which is influenced by monetary policy. It will also have access to in-house inflation projections, and may choose to trim the benchmark rate in the face of a contracting economy.
Our suspicion, however, is that it will want to see further declines in inflation before easing.
We see another slowdown in the headline rate in March, to 16.6% y/y.
