Economy

Base Effects Dictate Inflation Trajectory

Published

9 years ago

20/04/2017

By ARM Securities

Nigeria’s headline inflation decelerated for the second consecutive month (-50bps) to 17.3% in March – though lagging the scale of moderation in prior month’s reading (-92bps).

Instructively, the reading was significantly behind Bloomberg consensus estimate of 16.7% as changes in food inflation (-10bps to 18.4% YoY) failed to keep pace with expected impact of naira gains at the parallel market in the review month.

That said, high base effect from 2016 electricity and PMS price hikes saw core inflation decelerate a further 60bps to 15.4% to dictate overall YoY headline trajectory. On a MoM basis, headline inflation increased by 1.72% (vs. 1.49% in prior month’s reading) largely reflecting unyielding food pressures (MoM: 2.21%).

Focusing on core inflationary movements, breakdowns indicate a 1.32% MoM increase in the core basket buoyed by increases in prices of miscellaneous services related to dwelling, solid fuels, clothing materials, spirits, lubricants, and personal transport.

Also, despite moderation in prices of some known energy components (PMS (-0.3% MoM), Kerosene (-14.2% MoM) and Diesel (-5.4% MoM)), pressures from other sources (e.g. solid energy) drove energy inflation higher to 1.4% MoM.

The foregoing combined with the pressures on miscellaneous services front drove core inflation higher in the review month.

Overall, despite core inflationary pressures suggested by the MoM readings, the impact of high base remained evident on YoY numbers as increases in PMS (+10% YoY), kerosene (+54% YoY), and diesel (+60% YoY) in March failed to stall YoY core deceleration.

In line with the trend recorded over the prior months, MoM food inflation increased sharply by 2.2% (vs. February reading of 1.99%) despite naira gains at the parallel market in March.

According to FEWSNET, pressures on Nigeria’s farm produce prices persisted despite recent gains in foreign reserve (+0.4% to $30.4 billion) and direct government intervention due to structural challenges, restriction on use of forex reserve for food imports as well as higher transactions and transportation cost (March transport inflation: +1.2% MoM, +15% YoY) in the review period.

Specifically, while government’s interventions—including Anchor Borrowers programme—slightly increased areas cultivated, initiatives to curb transport challenges (i.e. grain by rail) were yet to kick-in to stem the major transport setback in the review month.

Importantly, MoM transportation inflation have steadily increased in the last three months, with the March reading (1.2% MoM) printing at the highest level since July 2016, following price hikes by major transport associations across the country in response to the sharp jump in Diesel prices in December.

For context, we note that the cost of transportation between assembly markets in North Central and other Northwest states of Nigeria, particularly to Dawanau market in Kano, increased by about 70% compared to last year.

Going forward, we expect impact of high base effect to continue to dictate core inflation and overall headline trajectory despite concerns on the food inflation front. Precisely, high base effect from the 45% and 68% increases in electricity and PMS prices in 2016 should leave YoY core reading subdued with recent gains in PMS, kerosene, and diesel prices leaving sizable scope for sustained decelerations.

However, we are less sanguine on the food side of things over the near term owing to recent pressures from higher transactions and transportation costs.

That said, the more recent retrace in diesel prices suggests that pressures from the transport front would be less impacting in coming reading. In addition to this, the incentive of higher prices and FG’s continued push on the Anchor Borrowers Program front are notable signposts of gradual near and medium term gains relating to domestic food availability respectively.

On the former, we expect farmers to sustain their ramp up of output in April offseason harvest as higher prices continue to provide the needed incentive.

Thus, with lagged impact of naira gains at the parallel market also raising scope for temperance in demand pressures from neighbouring West Africa, pressures on food inflation should be relatively contained in the coming reading compared to that of the prior month.

On balance, we expect moderation in core inflation to offset pressures from food inflation.

Against this backdrop, we now look for headline reading of 16.7% YoY for April with 2017 mean now printing at 15.4% YoY (2016: 15.6% YoY).

In terms of market impact, elevated MoM inflation reading provide another justification for CBN to leave its hawkish monetary policy intact over the near term.

That said, given the impact of contractionary monetary policy on FG’s borrowing cost with April 2017 subscription (N111 billion) significantly below amount on offer (N135 billion), we think pressures from the fiscal authorities could compel some form of monetary easing over H2 17.

Source: www.armsecurities.com.ng.

Economy

Oil Market Climbs on Federal Reserve Rate-Cut Signals, Supply Concerns

Published

16 minutes ago

06/12/2025

Adedapo Adesanya

By Adedapo Adesanya

The oil market was up on Friday on increasing expectations the US Federal Reserve will cut interest rates next week, which could boost economic growth and energy demand.

Brent futures rose by 49 cents or 0.8 per cent to $63.75 per barrel and the US West Texas Intermediate (WTI) futures expanded by 41 cents or 0.7 per cent to $60.08 per barrel.

Investors digested a US inflation report and recalibrated expectations for the Federal Reserve to reduce rates at its December 9-10 meeting.

US consumer spending increased moderately in September after three straight months of solid gains, suggesting a loss of momentum in the economy at the end of the third quarter as a lackluster labor market and the rising cost of living curbed demand.

Traders have been pricing in an 87 per cent chance that the US central bank will lower borrowing costs by 25 basis points next week, according to CME Group’s FedWatch Tool.

Investors also focused on news from Russia and Venezuela to determine whether oil supplies from the two sanctioned members of the Organisation of the Petroleum Exporting Countries and allies (OPEC+) will increase or decrease in the future.

The failure of US talks in Moscow to achieve any significant breakthrough over the war in Ukraine has helped to boost oil prices so far this week.

A loss of Venezuelan oil production in case of a US military intervention will materially impact global benchmark prices as the market will have to replace Venezuela’s heavy crude.

Venezuela is estimated to pump about 1.1 million barrels per day of crude oil at present, so if the US-Venezuela tension escalation into an invasion in the South American country, this volume of crude would be at risk.

Reuters reported that the Group of Seven countries and the European Union are in talks to replace a price cap on Russian oil exports with a full maritime services ban in a bid to reduce the oil revenue that helps finance Russia’s war in Ukraine.

Any deal that could lift sanctions on Russia, the world’s second-biggest crude producer after the US, could increase the amount of oil available to global markets, weakening prices.

Economy

UK Backs Nigeria With Two Flagship Economic Reform Programmes

Published

16 hours ago

05/12/2025

Adedapo Adesanya

By Adedapo Adesanya

The United Kingdom via the British High Commission in Abuja has launched two flagship economic reform programmes – the Nigeria Economic Stability & Transformation (NEST) programme and the Nigeria Public Finance Facility (NPFF) -as part of efforts to support Nigeria’s economic reform and growth agenda.

Backed by a £12.4 million UK investment, NEST and NPFF sit at the centre of the UK-Nigeria mutual growth partnership and support Nigeria’s efforts to strengthen macroeconomic stability, improve fiscal resilience, and create a more competitive environment for investment and private-sector growth.

Speaking at the launch, Cynthia Rowe, Head of Development Cooperation at the British High Commission in Abuja, said, “These two programmes sit at the heart of our economic development cooperation with Nigeria. They reflect a shared commitment to strengthening the fundamentals that matter most for our stability, confidence, and long-term growth.”

The launch followed the inaugural meeting of the Joint UK-Nigeria Steering Committee, which endorsed the approach of both programmes and confirmed strong alignment between the UK and Nigeria on priority areas for delivery.

Representing the Government of Nigeria, Special Adviser to the President of Nigeria on Finance and the Economy, Mrs Sanyade Okoli, welcomed the collaboration, touting it as crucial to current, critical reforms.

“We welcome the United Kingdom’s support through these new programmes as a strong demonstration of our shared commitment to Nigeria’s economic stability and long-term prosperity. At a time when we are implementing critical reforms to strengthen fiscal resilience, improve macroeconomic stability, and unlock inclusive growth, this partnership will provide valuable technical support. Together, we are laying the foundation for a more resilient economy that delivers sustainable development and improved livelihoods for all Nigerians.”

On his part, Mr Jonny Baxter, British Deputy High Commissioner in Lagos, highlighted the significance of the programmes within the wider UK-Nigeria mutual growth partnership.

“NEST and NPFF are central to our shared approach to strengthening the foundations that underpin long-term economic prosperity. They sit firmly within the UK-Nigeria mutual growth partnership.”

Economy

MTN Nigeria, SMEDAN to Boost SME Digital Growth

Published

16 hours ago

05/12/2025

Aduragbemi Omiyale

By Aduragbemi Omiyale

A strategic partnership aimed at accelerating the growth, digital capacity, and sustainability of Nigeria’s 40 million Micro, Small and Medium Enterprises (MSMEs) has been signed by MTN Nigeria and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).

The collaboration will feature joint initiatives focused on digital inclusion, financial access, capacity building, and providing verified information for MSMEs.

With millions of small businesses depending on accurate guidance and easy-to-access support, MTN and SMEDAN say their shared platform will address gaps in communication, misinformation, and access to opportunities.

At the formal signing of the Memorandum of Understanding (MoU) on Thursday, November 27, 2025, in Lagos, the stage was set for the immediate roll-out of tools, content, and resources that will support MSMEs nationwide.

The chief operating officer of MTN Nigeria, Mr Ayham Moussa, reiterated the company’s commitment to supporting Nigeria’s economic development, stating that MSMEs are the lifeline of Nigeria’s economy.

“SMEs are the backbone of the economy and the backbone of employment in Nigeria. We are delighted to power SMEDAN’s platform and provide tools that help MSMEs reach customers, obtain funding, and access wider markets. This collaboration serves both our business and social development objectives,” he stated.

Also, the Chief Enterprise Business Officer of MTN Nigeria, Ms Lynda Saint-Nwafor, described the MoU as a tool to “meet SMEs at the point of their needs,” noting that nano, micro, small, and medium businesses each require different resources to scale.

“Some SMEs need guidance, some need resources; others need opportunities or workforce support. This platform allows them to access whatever they need. We are committed to identifying opportunities across financial inclusion, digital inclusion, and capacity building that help SMEs to scale,” she noted.

Also commenting, the Director General of SMEDAN, Mr Charles Odii, emphasised the significance of the collaboration, noting that the agency cannot meet its mandate without leveraging technology and private-sector expertise.

“We have approximately 40 million MSMEs in Nigeria, and only about 400 SMEDAN staff. We cannot fulfil our mandate without technology, data, and strong partners.

“MTN already has the infrastructure and tools to support MSMEs from payments to identity, hosting, learning, and more. With this partnership, we are confident we can achieve in a short time what would have taken years,” he disclosed.

Mr Odii highlighted that the SMEDAN-MTN collaboration would support businesses across their growth needs, guided by their four-point GROW model – Guidance, Resources, Opportunities, and Workforce Development.

He added that SMEDAN has already created over 100,000 jobs within its two-year administration and expects the partnership to significantly boost job creation, business expansion, and nationwide enterprise modernisation.