Nigeria CPI (Aug.) - Capital Economics
Africa Economics

Nigeria CPI (Aug.)

Africa Data Response
Written by Virag Forizs

The increase in Nigerian inflation in August, to 13.2% y/y, will probably stay the hand of policymakers at next week’s MPC meeting. But, with a weak economic recovery, there may still be scope for an interest rate cut later this year.

Jump in inflation to prevent rate cut… for now

  • The increase in Nigerian inflation in August, to 13.2% y/y, will probably stay the hand of policymakers at next week’s MPC meeting. But, with a weak economic recovery, there may still be scope for an interest rate cut later this year.
  • Figures released today showed that inflation in Nigeria jumped from 12.8% y/y in July to 13.2% y/y in August, the highest figure since early 2018. (See Chart 1.) The outturn was a touch lower than our forecast of 13.4% y/y, but above the Bloomberg consensus of 13.0% y/y.
  • The breakdown of the data showed a broad-based rise in price pressures. Food inflation increased from 15.4% y/y in July to 15.9% y/y in August as the country’s lockdown put pressure on food prices. And inflation picked up in other categories including housing and transport, to 10.2% y/y and 11.2% y/y, respectively. (See Table 1.) Moves by policymakers to deregulate petrol prices probably contributed to the rise in transport inflation.
  • Core inflation also rose, from 10.1% y/y in July to 10.5% y/y in August. The pick-up in inflation in a broad range of price categories suggests that devaluations of the official and Nafex exchange rates, in late-March and early-July, have added to price pressures.
  • Looking ahead, a weaker naira and further moves to fully liberalize petrol pricing from September and an electricity tariff hike in the same month will probably put further upwards pressure on inflation. The headline rate is likely to edge higher in the coming months.
  • The policy direction of the Central Bank of Nigeria is notoriously hard to predict. Following today’s inflation reading, a rate cut at next week’s MPC meeting seems unlikely. But we think that the weakness of Nigeria’s economic recovery might prompt the central bank to ease policy later this year. (See Chart 1.) There may be scope for a 50bp rate cut, from 12.50% to 12.00%, at the November meeting.

Chart 1: Consumer Prices & Key Policy Rate

Sources: Nigerian Bureau of Statistics, Central Bank of Nigeria, Capital Economics

Table 1: Nigeria Consumer Prices

Headline

Core

Food*

Housing

Transport

% y/y

% m/m

% y/y

% y/y

% y/y

% y/y

May

12.4

1.2

10.1

15.0

9.7

10.1

Jun.

12.6

1.2

10.1

15.1

9.9

10.4

Jul.

12.8

1.2

10.1

15.4

9.9

10.8

Aug.

13.2

1.3

10.5

16.0

10.2

11.2

Sources: Nigerian Bureau of Statistics. (*) Includes non-alcoholic beverages


Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com