The latest inflation report from the NBS shows the eighth successive acceleration in the headline rate, to 17.9% y/y in September from 17.6% the previous month. Our own contribution to wire service polls of analysts was a rate of 18.0% y/y. There was an increase in the core measure to 17.7% y/y from 17.2%. The NBS commentary again singled out soaring energy costs. We note that housing, water, electricity, gas and other fuel prices increased by 26.3% y/y in September, compared with 25.9% the previous month; they account for 12.7% of the index.
The m/m increase in headline inflation has now slowed for four successive months, from 2.8% in May to 0.8%. This trend is consistent with the squeezing of household demand in the recession.
Naira depreciation has slowed since the large adjustment in June. The FGN’s expansionary fiscal stance should become another driver in the months ahead.
The monetary policy committee’s view is that the principal drivers of inflation are supply-side and beyond its influence. We think that it will start to cut its policy rate next year as headline inflation slows on positive base effects.
Mid-curve FGN bond yields are now close to 300bps negative in real terms. This has not deterred the domestic institutional investors which dominate the DMO’s monthly auctions.
Our more alert readers will have noticed that the headline rate y/y in September was higher than that of its constituent parts (non-food and food). We therefore have to share the NBS health warning that processed foodstuffs are elements of both parts. The price of imported food, which has a 13.2% weighting in the index, increased by 20.8% y/y in September.