The latest inflation report from the NBS shows a fourth successive decline in the headline inflation y/y, to 16.3% in May from 17.2% the previous month. The growth in the core measure slowed from 14.8% y/y to 13.0%, its lowest level for more than one year. Meanwhile, food inflation was unchanged at 19.3% y/y; the rounding off masks the 3bps decline. The bureau’s commentary notes higher prices for most staples as well as wine and spirits, clothing, motor cars, lubricants for personal transport equipment and air transport.
It seems the fx interventions by the CBN have had a positive impact on imported food inflation. We note the recent convergence between the NAFEX window and the parallel market as the naira is trading at about N365/US$ on both markets. Imported food price inflation slowed to 15.0% y/y from 17.0%; this is the only index component made up solely of imports.
Food inflation remains high. In addition to the poor infrastructure, supply-side constraints may have been partly triggered by some farmers’ preference for exports as opposed to domestic supply.
The headline rate increased by 1.9% m/m in May (the highest recorded this year), compared with 1.6% recorded in the previous month.
In its latest communique, the monetary policy committee (MPC) viewed the steady slowdown in y/y inflation as unsustainable, given that the limit to the positive base effects may have been reached. The committee’s focus is on m/m trends, and they provide no reason whatsoever for easing.
Looking ahead to June, we see a marginal uptick in the headline rate to 16.4% y/y.
