According to the National Bureau of Statistics (NBS), Nigeria’s headline inflation rose by 49bps to 33.69% y/y in April (March: +33.20% y/y), marking the slowest y/y increase since June 2023 (+38bps).
The inflation print was 129bps and 51bps lower than Cordros’ estimate (34.98% y/y) and Bloomberg’s median consensus estimate (34.20% y/y), respectively. Further analysis of the data showed that food inflation rose by 52bps to 40.53% y/y (March: 40.01% y/y), while core inflation (all items less farm produce and energy) increased by 94bps to 26.84% y/y (March: 25.90% y/y).
Notably, month-on-month inflation eased by 73bps to 2.29% (March: 3.02% m/m) as the appreciation of the naira slowed price increases in April.
While food prices remained elevated in April, we witnessed a moderation on a month-on-month basis. Specifically, food inflation moderated by 112bps to 2.50% in April m/m (March: 3.62% m/m), leading to a y/y increase of 40.53% (March: 40.01% y/y).
The slowdown in food prices can be attributed in part to the appreciation of the naira, with the Nigerian Autonomous Foreign Exchange Market (NAFEM) rate reaching a high of NGN1,072.74/USD on 16 April, coming from a low of NGN1,615.94/USD as of 13 March.
We point out that the appreciation of the naira reduced the costs of raw materials used in processing food and discouraged the smuggling of farm produce to neighbouring countries, thereby improving food supplies. Furthermore, we highlight that the off-season harvest, which typically commences in April through June, improved the supply of farm produce, thereby lowering prices.
We also believe that the moderation in logistics costs, given Dangote Refinery’s supply of diesel at a lower price, may have also softened food prices, particularly in the urban areas. Consequently, prices across Farm produce (-101bps to 2.41% m/m), Processed foods (-114bps to 2.53% m/m) and Imported Food (-155bps to 2.31% m/m) moderated.
Similarly, prices within the core basket, which excludes food and energy items, responded positively to the appreciation of the naira as price increases decelerated by 34bps to 2.20% m/m (March: 2.54% m/m). Further analysis showed that price increases eased across Restaurants and Hotels (-85bps to 2.21% m/m), Utilities (-39bps to 2.35% m/m), Recreation and Culture (-34bps to 0.82% m/m), Health (-20bps to 1.43% m/m), Clothing and Footwear (-14bps to 1.18% m/m), Miscellaneous Goods and Services (-9bps to 1.51% m/m) and Education (-6bps to 1.43% m/m) sub-baskets.
On the other hand, prices increased at a faster pace across Alcoholic beverages and Tobacco (+30bps to 2.43% m/m) and Furnishings & Household Equipment Maintenance (+32bps to 1.68% m/m) sub-baskets. Noteworthily, the Transportation sub-basket also edged higher by 43bps to 2.15% m/m, reflecting the impact of higher PMS prices on transportation costs given the scarcity of the product, which began mid-April. Overall, core inflation rose by 94bps to 26.84% y/y (March: 25.90% y/y).
Outlook
For May, we highlight that inflation risks are tilted to the upside. For context, the naira has begun to weaken against the greenback in the FX market as muted FPI inflows mount fresh pressures on the currency.
Consequently, the naira has depreciated by c. 29.0% to a low of NGN1,520.00/USD in the NAFEM market as of 14 May. We expect manufacturers and traders who import their raw materials to reprice their stocks in line with the depreciation of the naira, potentially stoking consumer prices.
In addition, we expect the food demand-supply gap to widen primarily due to a depletion of stock from the off-season harvest, potentially stoking food prices. For clarity, a report from the Farming Early Warning System (FEWSNET) pointed out that the output from the ongoing dry season harvest was below average due to the high cost of inputs, including fertilizer, improved seeds, and fuel, which subdued planting, and in turn the eventual output. Restricted access to farmlands was also a strong headwind in this regard. Accordingly, food inflation is expected to edge higher by 24bps to 2.74% m/m in May, bringing the y/y increase to 41.29%.
In the same vein, we expect core inflation to edge higher, reflecting the depreciation of the naira and the high cost of doing business. Hence, we anticipate a 16bps increase in core inflation to 2.36% m/m, pushing the y/y numbers higher to 27.48%. Overall, headline inflation is projected to increase by 32bps to 2.6% m/m, leading to a y/y increase of 34.56%.
Cordros …is a financial services group
