The rise in Nigerian inflation in October, to 14.2% y/y, will probably prevent policymakers from continuing their easing cycle next week. But we think that further cuts lie in store in early 2021.
Another jump in inflation
- The rise in Nigerian inflation in October, to 14.2% y/y, will probably prevent policymakers from continuing their easing cycle next week. But we think that further cuts lie in store in early 2021.
- Figures released today showed that inflation in Nigeria jumped from 13.7% y/y in September to 14.2% y/y in October, the highest reading since early 2018. (See Chart 1.) The outturn was above our estimate of 13.8% y/y and the Bloomberg consensus of 14.1% y/y.
- A large increase in food inflation, from 16.6% y/y in September to 17.3% y/y in October was the main driver behind the rise in the headline rate. Heavy flooding since September disrupted the food supply chain and pushed up food price pressures. The two-step devaluation of the naira, in March and July, probably contributed to higher imported food inflation.
- But inflation pressures picked up in other major price categories too. (See Table 1.) The government’s moves to liberalise fuel prices appears to have fed through into transport inflation, which rose from 11.6% y/y in September to 12.1% y/y in October. Meanwhile, core inflation reached 11.1% y/y last month. Large scale protests, sparked by police brutality in October, that were reportedly accompanied by stockpiling may have pushed up price pressures too.
- Inflation is likely to remain elevated in the coming months. Food inflation is likely to stay high and we think that the effects of currency weakness will take some time to unwind. Meanwhile, an electricity tariff hike that was scheduled to take effect in September was delayed into November.
- October’s inflation reading will probably prevent policymakers from delivering another rate cut at their upcoming MPC meeting on 24th November. That said, policymakers seem to be shifting their focus away from concerns about inflation and towards supporting the economy. We think that a small drop in price pressures, probably in early 2021, will be sufficient for the resumption of the easing cycle and we have pencilled in 150bp of cuts, to 10.00%, by end-2021.
Chart 1: Consumer Prices & Key Policy Rate
Sources: Nigerian Bureau of Statistics, Central Bank of Nigeria, Capital Economics
Table 1: Nigeria Consumer Prices
Sources: Nigerian Bureau of Statistics. (*) Includes non-alcoholic beverages
Virág Fórizs, Africa Economist, firstname.lastname@example.org