According to the National Bureau of Statistics (NBS), Nigeria’s headline inflation moderated by 74bps to 22.97% y/y in May (April: 24.23% y/y).
Breaking it down, food inflation eased by 12bps to 21.14% y/y (April: 21.26% y/y), while core inflation fell sharply by 110bps to 22.28% y/y (April: 23.39% y/y). On a month-on-month basis, headline inflation slowed by 33bps to 1.53%, compared to 1.86% m/m in April.
On a month-on-month basis, food inflation rose by 13bps to 2.19% in May (April: 2.06% m/m), primarily reflecting a substantial increase in farm produce prices (+21.48ppts to 22.44% m/m).
This outcome aligns with our expectations, as we anticipated that the food demand-supply gap would persist during the review period, driven by the commencement of the planting season in the Northern region and a below-average off-season harvest. In contrast, imported food inflation (-1.4% y/y vs April: +1.25% m/m) declined, supported by the relative stability of the naira.
Meanwhile, core inflation moderated by 24bps to 1.10% m/m in May (April: 1.34% m/m), largely due to slower price increases across key components, including Education services (-10.55ppts to 0.52% m/m), Utilities (-337bps to 0.97% m/m), Health (-219bps to 0.93% m/m), Clothing and Footwear (-201bps to 0.46% m/m), Transport (-179bps to 0.27% m/m), ICT (-125bps to 1.61% m/m) as well as Miscellaneous Goods & Services (-514bps to 0.86% m/m).
However, upward pressure persisted in other segments, with prices rising in Restaurants & Accommodation services (+418bps to 4.59% m/m), Furnishing & Household Equipment Maintenance (+62bps to 0.82% m/m), and Recreation (+18bps to 0.35% m/m) sub-baskets.
Outlook
We believe the increase in consumer demand due to the festive celebrations for Eid al-Kabir in early June may have contributed to a rise in food prices. Since the NBS typically captures monthly prices within the first two weeks of each month, the June figures are likely to reflect these increases.
This is further compounded by the ongoing planting season, which is expected to keep farm produce prices elevated. However, the continued stability of the naira is likely to support the easing of imported food prices, which may help to partially offset the upward pressure from higher domestic food costs.
At the same time, core inflation is expected to maintain its downward trend, supported by stable energy prices and a limited exchange rate pass-through.
With non-food items now making up a larger portion of the new Consumer Price Index (CPI) basket (c. 60.0%), we believe the anticipated moderation in core inflation could balance out the rise in food prices, potentially resulting in a slowdown in the headline inflation rate for June.
Cordros
