The latest inflation report from the NBS shows a fifth successive decline in the headline inflation y/y, to 16.1% in June from 16.3% the previous month. (This was our expectation, shared with the wire services.) The growth in the core measure slowed from 13.0% y/y to 12.5%, its lowest level since March 2016. In contrast, food price inflation accelerated from 19.3% y/y to 19.9%. The report overall is a mixed blessing for policymakers, who will correctly focus on the supply-side constraints.
Core inflation slowed for the seventh successive month in June. The NBS commentary singled out clothing and footwear, which has a 7.7% weighting in the index, as the segment with the highest y/y inflation (of 15.7%). The trend in core inflation overall is surely a reflection of the softening of demand in a recessionary/low growth environment.
The impact of the CBN’s stepped up fx interventions on parallel market rates has also been a positive. This helps to explain the latest decline in imported food price inflation to 14.2% y/y in June from above 21.0% throughout Q4 2016.
The headline rate remains high because of stubbornly high food price inflation, which is driven by logistical constraints, pest infestations and, quite possibly, an increasing preference of farmers for exporting their produce.
The monetary policy committee (MPC) meets next week. In its communique in late May, it welcomed the downward trend in the headline rate, which, however, sat far above the reference band of between 6% and 9%. The committee therefore is unlikely to cut rates in the short term.
The run of positive base effects has now come to an end. We see a small uptick in the headline rate to 16.2% y/y in July on a m/m increase of 1.3%.
