Nearing the peak in headline inflation

The latest inflation report from the NBS shows the tenth successive acceleration in the headline rate, to 18.5% y/y in November from 18.3% the previous month. This was our expectation, shared with wire service polls of analysts. There was an increase in the core measure to 18.2% y/y from 18.1%. Once again, the highest increase recorded among elements of the core measure was for housing, water, electricity, gas and other fuel prices: they increased by 27.2% y/y in November, compared with 26.9% the previous month, and account for 12.7% of the total index.
The m/m increase in headline inflation has now slowed from 2.8% in May to 0.8%. This trend is consistent with the squeezing of household demand.

Naira depreciation has slowed since the large adjustment in June. If the parallel fx market was on a scale that some commentary suggests, we would not be seeing this steady decline in m/m inflation.


Nearing the peak in headline inflation Sources: National Bureau of Statistics (NBS); FBNQuest Research

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 with effect from February.

Mid-curve FGN bond yields are now about 250bps negative in real terms. For whatever reason, the bid from domestic institutional investors has been soft at the last two monthly auctions.

Our observant readers will have noticed that the headline rate y/y in November 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.

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