Another jump in Nigerian inflation, to 14.9% y/y in November, will probably be followed by elevated readings in the coming months. But as the headline rate peaks, probably in early 2021, we think that policymakers will resume their monetary easing cycle to support the economy.
Higher and higher
- Another jump in Nigerian inflation, to 14.9% y/y in November, is likely to be followed by elevated readings in the coming months. But as the headline rate peaks, probably in early 2021, we think that policymakers will resume their monetary easing cycle to support the economy.
- Figures released today showed that inflation in Nigeria rose from 14.2% y/y in October to 14.9% y/y in November, the highest since early 2018. (See Chart 1.) The outturn was above our estimate of 14.7% y/y although it was in line the Bloomberg consensus of 14.9% y/y.
- Food inflation jumped once again, from 17.3% y/y in October to 18.3% y/y in November, pushing up the headline rate. Heavy flooding in September and ongoing security problems probably disrupted the food supply chain. Imported food inflation edged higher too on the back of a two-step devaluation of the naira.
- The rise in price pressures was broad-based. Inflation picked up in other major price categories too. (See Table 1.) The administration’s steps to liberalise petrol prices filtered through to transport inflation, which increased from 12.1% y/y in October to 12.6% y/y in November. And an electricity tariff hike, implemented in November after some delay, seems to have driven up inflation in the housing and utilities category, to 11.0% y/y. Core inflation remained unchanged, at 11.1% y/y, last month.
- Looking ahead, inflation will probably remain high in the coming months. Food price pressures are likely to take some time to ease. And we think that the effects of currency weakness will be slow to unwind as well. But the headline rate should begin to drop back in early 2021.
- We expect that monetary easing will be resumed once inflation has peaked in order to lend more support to country’s economic recovery. Fears of a second wave of COVID-19 triggering tighter restrictions may weigh on activity, and prompt policymakers to deliver further rate cuts. We pencilled in a further 150bp of cuts in the benchmark rate, to 10.00%, early next year.
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