Uptick in food price inflation

The latest inflation report from the NBS shows headline inflation y/y at 16.1% in July – the sixth successive slowdown. The rounding off masks a decrease of just 5bps when compared with the previous month. Our expectation shared with wire service polls of analysts was a marginal uptick to 16.2% y/y. The growth in the core measure slowed from 12.5% to 12.2%, its lowest level since March 2016. In contrast, food price inflation accelerated from 19.9% to 20.3%. The bureau’s commentary notes higher prices for all staples.

Food inflation is now above 20%. We assume this is largely driven by logistical constraints and pest infestations. Anecdotal evidence also points towards an increased preference of farmers to export their produce as opposed to supply domestically. Additionally, seasonal effects are probably contributing to the steady increase; as the harvest (November) nears, there could be a considerable slowdown in the sub-index.

The fx interventions by the CBN have had a positive impact on imported food inflation. Imported food prices slowed to 14.1% y/y from 14.2% recorded in June. Meanwhile, NAFEX turnover amounted to US$2.3bn in July according to FMDQ.

The m/m increase in headline inflation has now slowed from 1.6% in June to 1.2%. This trend is consistent with the softening of household demand. However, m/m inflation remains above 1.0%, indicating traces of pressure on prices.

The latest communique by the monetary policy committee (MPC) noted that the committee is pleased with the downward trend in inflation. However, it remains concerned over loosening as this could exacerbate inflationary pressures. The committee is scheduled to meet next on the 25 and 26 September.

We see an uptick in headline inflation to 16.3% y/y in August.

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