The shrinking gains of disinflation

The latest report from the NBS has headline inflation y/y at 11.2% in June. This is the seventeenth successive monthly slowdown, but the decline has slowed from 87bps to 38bps on this occasion. Food price inflation slowed from 13.5% to 13.0% y/y, and the core measure from 10.7% to 10.4%. Our expectation, shared with wire services, was 10.8% y/y for the headline measure.                                                                                 

  • The headline rate rose by 0.8% m/m from January through to April, accelerating to 1.1% in May and 1.2% in June. The pattern for food prices has been similar but more pronounced: 0.8% to 0.9%, followed by 1.3% and 1.6%.
  • The bureau identifies most components of the food index (meat, fish, fruit, vegetables, oils and fats, and potatoes, yam and other tubers) as recording among the highest rises in June. This is the weak link of the inflation story.
  • The report also tracks inflation by state, with the highest 13.8% y/y in Rivers in June and the lowest, for the second month in succession, 8.2% in Kwara. However, it cautions that household baskets vary across states.
Consumer price inflation (% chg; y/y)

Sources: National Bureau of Statistics (NBS); FBNQuest Capital Research.

  • Each year since 2010 the headline rate m/m has slowed in July, driven in every case by food prices. On the other hand, the recurring clashes between farmers and herdsmen have complicated inflation forecasting. We therefore project the rate flattish this month, at 11.2% y/y.
  • This latest NBS report is available to the current MPC meeting. We suspect that the slowdown in disinflation gains will reinforce its arguments against easing. The run of positive base effects has been exhausted, and the committee is preoccupied with the threat to inflation from the fiscal.

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