Nigeria’s inflation rate slows 17.38% in July; 4th consecutive decline

• Headline inflation rate grew by 17.38% YoY in July 2021; 0.37% lower than the 17.75% recorded in June 2021.

• Food inflation rate inched up by 21.03% YoY in July 2021; 0.80% lower than the 21.83% recorded in June 2021.

• Core inflation stood at 13.72% YoY in July 2021; 0.63% higher than the 13.09% recorded in June 2021.

The drop in headline inflation marks the fourth consecutive decline, following a 19-month uptrend that lasted from September 2019 till March 2021. The decline in the headline index rode on the back of further moderation in the food sub-index, while the core segment resumed its uptick.

Headline Inflation

In July 2021, headline inflation rose by 0.93% MoM, representing a 0.13% decline from the rate of 1.06% that was recorded in the previous month. The yearly average rate rose to 16.30%, 0.37% greater than the 15.93% recorded in the previous month. The slowdown in the headline index was driven by a moderation in the monthly price change of goods in the food basket.

Food Inflation

The food sub-index rose by 0.86% MoM, reflecting a 0.25% decline from the rate of 1.11% recorded in June 2021. The yearly average rate rose to 20.16%, 0.44% greater than the 19.72% recorded in June 2021. The food subindex sustained its monthly uptrend, largely due to the impact of the green harvest season.

Core Inflation

Core inflation stood at 1.31% MoM, up 0.50% from 0.81% recorded in June 2021. The yearly average rate also rose to 12.05% last month, 0.29% higher than the 11.75% recorded in the preceding month. The highest increases were recorded in prices of garments, shoes and other footwear, clothing materials, other articles of clothing and clothing accessories, vehicle spare parts, major household appliances whether electric or not, pharmaceutical products, cleaning, repair and hire of clothing, furniture and furnishing, medical services and hospital services.

Analyst’s Comments

The trend of moderation in the headline index extended to a fourth consecutive month, drawing support from a similar trend of disinflation in the food subindex. The key driver behind the moderation seen has been the impact of the high base effect, but the recent headline rate also received support from the improved supply of certain food items like yam and maize as the economy entered the middle of the Southern green harvest season in July.

Accordingly, the monthly rate of food and headline inflation rose at a decreasing rate in the review period. However, the core segment resumed its monthly and yearly uptrend, as the impact of other active inflationary drivers filtered into this segment. Notable amongst these drivers is the prevailing FX crisis and lingering supply chain disruptions.

The recent trend of moderation in inflation is expected to remain, drawing support from a high base effect. Also, the expected dollar inflows from the IMF SDR allocation and the proposed Eurobond issuance should help ease the pressure in the FX market in the near term, providing the Apex bank with the necessary ammunition to clear out the existing backlog and to tackle speculation. Hence, the consequential improvement in our exchange rate position should help alleviate the upward pressure on prices.

However, the recently signed Petroleum Industry Bill poses a significant downside risk to the expected improvement in inflation, as the swift and proper implementation of the bill would bring about a sharp uptick in the price of Premium Motor Spirit, which would then trickle into the various items in the inflation basket. Nonetheless, on the policy end, the slowdown in inflation will keep the monetary policy authorities at ease with their current dovish stance, leaving consolidation of economic growth as the policy priority in the interim.