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HomeBusinessNigeria's inflation sees rising to 21.2% Sept ~ analysts at United Capital

Nigeria’s inflation sees rising to 21.2% Sept ~ analysts at United Capital

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Last week, the National Bureau of Statistics (NBS) released the Consumer Price Index (CPI) report for the month of August 2022. In line with our in-house projection, the headline inflation climbed 88bps to settle at 20.5 per cent year on year in August 2022, from July’s 19.6 per cent y/y, printing above the consensus forecast of 20.3 per cent.

Interestingly, the inflation print of 20.5 per cent represents the highest level in more than 13 years. On a month on month basis, the headline inflation rose by 1.8 per cent, 5bps lower than July 2022’s m/m print.

The surge in August’s inflation shows the multiplier effect of surging energy prices, rising food prices and the out impact of the low base effect from 2021.

Across the sub-indices, food inflation rose the fastest, continuing its 6-months steady rise as it expanded by 110bps to print at 23.1 per cent y/y in Aug-2022, from 22.0 per cent y/y in Jul-2022.

The surge in food prices can be attributed to legacy inhibitions to food supply due to the rising cost of importing fertilisers, increase in the cost of farm inputs (seeds and machinery), unabating insecurity challenges in food-producing states and the presence of supply-chain bottlenecks.

In tandem, the core inflation sub-index rose by 94bps to print at 17.2 per cent y/y in Aug-2022, from 16.3 per cent y/y in Jul-2022.

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In line with the current elevated inflationary environment, all the components of the core inflation basket trended higher m/m.

The surge in core inflation continues to reflect the impact of rising global energy costs as higher diesel and gas prices weigh pressures on Transport costs, Housing & Utility costs, and Operational costs in the Educational and Health sectors.

We maintain expectations of upward pressures on inflation for the rest of the year. Food inflationary pressures are expected to persist due to weaker farm output during the harvest season (from September) owing to higher farming costs and reduced farming population.

For core inflation, we expect global energy costs to remain elevated and the persistent FX pressures to impact the cost of imported and manufactured goods. That said, we project that the inflation rate will rise to 21.2 per cent in Sep-2022.

We believe this will be a significant consideration for the rate decision by the MPC at its meeting next week. We expect continued rate hikes to support asset class switches to the fixed income space.

Thus, we advise investors and fund managers to lock in funds in the short-term, following a rising yield environment.

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