This week, we spotlight the August 2025 Consumer Price Index (CPI) report released by the NBS, with a focus on price trend and the implications for the upcoming Monetary Policy Committee meeting for September 22nd and 23rd.
Notably, headline inflation rate moderated for the fifth consecutive month in August, easing to 20.1% y/y (Afrinvest forecast: 21.3%), compared to 21.9% in July and the 2025 average of 22.8%. The lower-than-expected reading was tail-winded by sharp moderation in m/m inflation to 0.7% against 2.0% in July.
Analyzing further, food prices rose by 21.9% y/y in August – the slowest increase in three months – aided by a downtick in monthly food inflation to 1.7%, the lowest reading in 2025. The disinflation in the food basket, in turn, was driven by a 0.2% m/m decline in farm produce prices, against 4.0% price increase in the prior month.
We view the price reduction as reflective of inventory sell-down ahead of the main harvest season (typically commencing September) and the impact of import-duty waivers on key grain imports evidenced by softened prices of Rice, Guinea corn, Maize flour and Millet. Similarly, the energy index recorded a deflation of 0.6% m/m in contrast to the 2.7% increase in July, an outcome we link to the price competition in the energy market as, notably, Dangote Petroleum Refinery cut ex-depot (gantry) PMS price by ₦30.00/litre to ₦820.00/litre during the month.
In contrast, core inflation (all items excluding food and energy) accelerated to 1.4% m/m in August, contrasting the mild 97bps increase in July. This jump reflects sharper inflationary pressures across Transport (2.6% m/m vs 0.4%), Health (4.2% vs 1.8%), Personal Care & Social Protection (3.2% vs 2.2%), Clothing & Footwear (2.1% vs 0.8%) and Restaurants & Accommodations (2.7% vs 1.9%). Nonetheless, favourable base effect pushed annual core inflation lower to a 2025 low of 20.3% y/y (July: 21.3%).
Looking ahead, we expect the disinflation trend to persist, supported by continued gains in the exchange rate (appreciated 2.2% MtD to ₦1,498.98/$1.00) and a softer global Brent price (down 2.1% MtD to $66.71/bbl.). Despite the commencement of the main harvest season, we anticipate a rebound in monthly food inflation as pockets of flooding and continued risks in food-producing regions could impact supply chain, while core inflation maintains its pace. Overall, we project headline inflation rate in September to clear at 1.6% m/m, translating to 19.0% y/y.
Ahead of the upcoming MPC meeting, we note the global backdrop of persistent inflationary pressures in advanced economies, prompting a cautious monetary policy stance. The US Fed, however, cut fund rate by 25bps in September – the first time this year – although inflation climbed to a seven-month high in the previous month. In Africa, central banks in Egypt (-200bps), Ghana (-350bps) and Kenya (-25 bps) have largely tolled a dovish path at their latest meetings, while South Africa bucked the trend by holding rates steady.
Meanwhile, domestic conditions appear increasingly supportive of a rate cut. The Stanbic IBTC PMI climbed to a four-month high of 54.2% in August, while gross external reserves rose to $40.2bn – the highest level since September 2019. Furthermore, the naira has appreciated 2.5% so far in 2025, core inflation eased to a 2025 low of 20.3% and the average money supply (M3) growth has slowed to 19.3% (vs. 63.8% in 2024).
Against this backdrop of favourable price dynamics, firm business expectations and positive external sector dynamics, we consider the macro environment ripe for a rate cut. Nonetheless, the risk of global reinflation, volatile geopolitical landscape, susceptibility of the energy markets to shocks and influence of base-year impact on domestic inflation trend may constrain the MPC to a 50–75bps rate cut next week.
Should our expectation materialise, we expect a reinforcement of bullish sentiment in the fixed-income market, driven by prospects of further easing in November or early 2026 if the macro and global conditions remain supportive. Also, domestic equities are likely to see modest gains, tempered by the divergent earnings outlooks across sectors.
Domestic Equities Market: Bullish Sentiment Prevails… ASI up 0.9%
This week, the local bourse closed on a bullish note with the NGX-ASI gaining 0.9% w/w to close at 141,845.3 points. As a result, market capitalisation climbed 0.9% w/w to ₦89.7tn while YTD return improved to 37.8% from 36.5% in the previous week. However, in terms of activity, the average volume and value traded dipped 14.2% and 14.5% to 547.0m units and ₦17.0bn, respectively. The most actively traded stocks by volume were ABBEYBDS (401.3m units), FIDELITYBK (317.6m units), and UBA (156.9m units), while GEREGU (₦10.3bn), ARADEL (₦9.5bn), and UBA (₦7.1bn) led in terms of value traded.
Performance across our coverage sectors was bullish as four indices closed in the positive territory while two indices lost. Topping the gainers, the Consumer Goods and Oil & Gas indices surged 5.5% and 2.8% w/w respectively, owing to buying interest in GUINNESS (+28.6%), UNILEVER (+8.7%), and ARADEL (+7.9%). Similarly, the AFR-ICT and Industrial Goods indices rose 0.6% and 0.1% w/w respectively, due to price appreciation in ETRANZACT (+11.7%), CWG (+0.6%), and AUSTINLAZ (+1.4%). Conversely, the Insurance and Banking indices fell 4.7% and 2.6% respectively driven by price losses in CORNERST (-15.4%), VERITASKAP (-9.1%), UBA (-9.2%), and WEMA (-6.4%).
Investor sentiment, as determined by market breadth declined to 0.0x (previously 0.6x) as 39 stocks advanced, 38 lost and 64 remained unchanged. Top gainers for the week were GUINNESS (+28.6%), MULTIVERSE (+21.3%), and EUNISELL (+20.3%) while OMATEK (-18.2%), CORNERST (-15.4%) and NSLTCH (-12.8%) led the losers. Looking ahead, we expect this bullish streak to be sustained in the absence of any negative shock.
Afrinvest
