According to the recently released data by the National Bureau of Statistics (NBS), headline inflation expanded by 105bps to 24.23% y/y in March (February: 23.18% y/y), bucking the slowdown trend from the prior two months since the CPI rebasing.
A breakdown of the data shows that food inflation eased to 21.79% y/y (February: 23.51% y/y), while core inflation edged up to 24.43% y/y (February: 23.01% y/y). On a month-on-month basis, consumer prices surged by 185bps to 3.90% (February: 2.04% m/m).
After the moderation witnessed in the prior months, food inflation increased in March, rising by 50bps to 2.18% m/m (February: 1.67% m/m). We believe the higher food prices reflect the impact of festive-induced demand following the Eid al-Fitr celebrations in March.
Additionally, following the shift to the planting season (typically April to June), we believe agricultural food supplies have fallen, which further pushed up food prices. Consequently, prices of farm produce (+87bps to 2.6% m/m) increased, offsetting the decline in imported food items (+123bps to 0.5% m/m). Meanwhile, on a year-on-year basis, food inflation moderated to 21.79% (February: 23.51% y/y).
Elsewhere, core inflation increased by 121bps to 3.73% m/m (February: 2.52% m/m), driven largely by higher energy costs and festive-induced spending pressures, compounded by the depreciation of the naira within the period. Consequently, we highlight that price pressures were significant across Health (+866bps to 10.2% m/m), Education services (+112bps to 4.5% m/m), and ICT (+58bps to 4.5% m/m) sub-baskets, while prices moderated across Transportation (-15bps to 2.0% m/m), Restaurant and Accommodation services (-307bps to 0.0% m/m), and Insurance & financial services (-248bps to 0.8% m/m) sub-baskets. As a result, on a year-on-year basis, the core index rose by 142bps to 24.43% (February: 23.01% y/y).
Outlook: Consumer Prices Could Increase Further in April
Although forecasting the headline inflation trend is somewhat challenging due to the recent methodological changes in the computation of CPI by the NBS, we believe price pressures are re-emerging. We attribute this to the (1) depreciation of the naira, (2) depletion of the main harvest supplies, and (3) elevated energy costs.
So far in April, the naira has averaged NGN1,596.86/USD, reflecting a 4.5% depreciation from the average rate of NGN1,524.27/USD in March. This continued weakening of the currency is expected to escalate import costs for both food and non-food items.
In addition, the dwindling supply of agricultural produce following the end of the main harvest season and the ongoing planting season is likely to exert further upward pressure on food prices.
Though the pace of increase in energy prices has moderated compared to the previous year, energy costs remain elevated and are expected to continue contributing to overall inflationary pressures. Therefore, we opine that the headline inflation is likely to increase further in April.
Cordros
