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Sticky Food Prices Limit Headline Inflation Moderation at 16.05%

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By Cordros Research

Yesterday, the National Bureau of Statistics (NBS) released the Consumer Price Index (CPI) report for the month of July, showing that Nigeria’s inflation rate increased by 16.05 percent y/y, 5 bps lower than the 16.10 percent recorded in June, marking the sixth successive y/y decline in the headline index.

Broadly in line with our forecast, albeit 10 bps ahead of Bloomberg’s compiled average estimate of 15.95 percent, the inflation figure is consistent with the sense that the base effect driven moderation expected at the beginning of the year has waned.

Again, the fact that the headline index came above consensus, as has been the trend thus far this year, further corroborates the case that prices remain sticky downward. Good to mention, however, the month-on-month price increase of 1.21 percent, 37 bps lower than June’s 1.58 percent, is the second consecutive m/m moderation recorded thus far in 2017, and the lowest since January (1.01 percent).

On average, from end-2016 level, month-on-month inflation has increased by 1.50 percent, 22 bps higher than the 1.28 percent average recorded in the seven months to December 2016.

While it may be argued that the persisting inflationary pressure again supports the central bank’s Monetary Policy Committee’s (MPC) case of holding the line on its policy stance, we think the Committee’s subsequent decisions will largely be influenced by its considerations of inflation volatility and expectation, rather than inflation itself.

As shown in a recent study by the apex bank, “Modelling Inflation Rate Volatility in Nigeria with Structural Breaks”, inflation level in an economy may not really be what matters strictly but inflation volatility, and fiscal policies importantly affect the latter.

The study guides that inflation only causes high inflation volatility only in a situation where monetary policy is dominated by fiscal policy and the government deficit cannot be predicted. That partly confirms the MPC’s persistent call on the fiscal authority to pursue complementary policies that support fiscal-monetary policy harmony.

Downplaying the likelihood of a rate hike, despite identified likely risks to banking system liquidity amid anticipated fiscal injections over H2-2017, the MPC clearly noted that additional tightening will widen the income gap, weigh down aggregate consumption, and further constrain credit to the real sector of the economy.

Strengthening the case for a rate cut, on the other hand, a critical assessment of the Committee’s considerations in its last meeting reveals that, unlike in May – where members expressed uncertainty around key economic activities particularly food production – expectation is for a robust harvest season capable of subduing the rate of price increase on the food component, which is expected to combine with continued moderation in core inflation to ease the pressure on the headline index.

That said, we suspect a rate cut is unlikely to be earlier than November when output growth would have comfortably returned to the positive value, inflation rate would have decelerated close to the empirically established 10 percent – 12.5 percent threshold for Nigeria, and exchange rate stability would have been relatively consolidated.

Notably, consistent with observed trend this year, all classification of Individual Consumption by Purpose (COICOP) which aggregates the headline index increased during the month under review, with sizable price increases reported in the following major divisions: oil and fats, bread and cereals, meat, coffee, tea and cocoa, vegetables, fish, potatoes, yam and other tubers, and garments and clothing materials and other articles of clothing.

Food Index Pressure Persists

Food inflation increased by 20.28 percent y/y (vs. 19.91 percent in June), with the import component declining for the eighth consecutive month to hit a 17-month low of 14.08 percent.

Meanwhile, m/m rate in this segment, at 1.52 percent (vs. June’s 1.99 percent), continued the moderation it started in June, consistent with the 0.15 percent m/m drop in the average prices reportedly paid by households across various rural and urban markets and informal arrangements, according to the NBS Selected Food Price Watch for July, driven by notable declines in the prices of egg (-3.14 percent), bread (-1.90 percent), chicken (-1.30 percent), gari (-1.15 percent), and rice (-1.10 percent). Year-to-date, the food index has increased by 14.4 percent, compared to 11.6 percent same period last year.

Core Inflation Sustains Slower Rate of Increase

Core inflation increased at a slower pace for the eight consecutive month, rising by 12.20 percent in July, versus 12.50 percent in June, with the highest increases reported in clothing materials and articles of clothing, furniture and furnishing, books and stationary, medical services, glassware, tableware & household utensils, accommodation services and household textiles.

On a m/m basis, prices rose at a slower rate in this segment at 1.00 percent (1.32 percent the previous month), benefitting from reported decreases of 0.3 percent, 2.36 percent, and 6.08 percent in average national prices of premium motor spirit, kerosene, and diesel to N145.9/litre, N280.49/litre, and N197.62/litre respectively.

Food Prices Remain Fundamental to Headline Inflation

Clearly, the direction of headline inflation for the rest of the year will be largely driven by food prices. Save for potential risk of negative surprises, specifically with regards foreign exchange, and the possible increase in electricity tariff, we expect continued moderation in the core component.

Drilling down events vis-à-vis food prices, results being reported in most areas vis-à-vis the dry season harvest are generally favourable.

The raining season has commenced with near-normal timing and cumulative rainfall across most of the country, in line with earlier guidance for the rainy season through September/October for average to above-average cumulative precipitation.

In its latest report, FEWS NET revealed that outside of the northeast, staple harvests that begin as late as October in northern areas are likely to be more robust than last year’s, due to increased access to inputs as well as strong production incentives for farmers due to very high staple food prices, in addition to increased government funding and support. Granted, incidence of flooding has been reported in most parts of the country but not primarily on the back of unusually heavy downpour.

More so, affected areas were largely residential not farmlands.

That said, for the rest of 2017, we maintain our position that except monthly inflation rate stays below the 1.5 percent average recorded since the beginning of the year, the likelihood of the headline index reaching 20 percent by December cannot be ruled out.

To be specific, we forecast the headline inflation rate in 2017 to average 16.10% (bull case) or 17.73 percent (bear case).

Meanwhile, we look for the CPI recording a marginal decline to 16.03 percent y/y and 1.00 percent m/m in August.

 

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

Economy

$1trn Economy: Edun Tasks State-Owned Enterprises on Transparency, Ethics

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By Adedapo Adesanya

The Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, has called on state-owned enterprises to increase standards of transparency, ethics, and performance as Nigeria pushes to build a $1 trillion economy.

Speaking at the MOFI Corporate Governance Forum in Abuja, the Minister described the newly introduced MOFI Scorecard as a vital benchmark for institutional health, designed to position state-owned enterprises for investment, growth, and long-term value creation.

According to Mr Edun, this scorecard is not just a document; it’s a test, adding that strong governance attracts capital, builds trust, and delivers real economic returns.

The two-day forum, themed Ensuring Value Creation in State-Owned Enterprises Through Better Corporate Governance, brought together CEOs, regulators, and development partners to examine how better oversight can unlock Nigeria’s public asset potential.

Referencing entities like NNPC Limited, Mr Edun noted that state-owned enterprises must be investor-ready as the government shifts from debt-heavy budgets to equity-based growth.

He also pointed to positive macro signals and falling food and fuel prices as early signs of a stabilising economy.

On his part, MOFI Chairman, Mr Shamsudeen Usman, confirmed that the scorecard will be enforced through independent assessments, including MOFI itself.

“We are not asking others to do what we haven’t already done,” he said.

Adding his input, MOFI CEO, Mr Armstrong Takang, outlined a rollout that includes third-party evaluations, remediation plans, and public recognition through the annual MOFI Excellence Awards.

Backed by the World Bank, the initiative marks a shift in how Nigeria manages public wealth, with governance now central to growth, resilience, and investor confidence.

The introduction of the governance scorecard is a testament to the Federal Government’s commitment to transforming Nigeria’s economy. As the country moves forward, one thing is clear: transparency, accountability, and growth will be the guiding principles for state-owned enterprises.

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Economy

NASD Market Capitalisation Jumps to N1.925trn

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By Adedapo Adesanya

The market capitalisation of the NASD Over-the-Counter (OTC) Securities Exchange rose by 1.70 per cent or N32.36 billion on Thursday, April 10, closing at N1.925 trillion, in contrast to the N1.892 trillion quoted at the preceding session.

However, the NASD Unlisted Security Index (NSI) went up by 10.46 points or 0.32 per cent to 3,287.85 points from the 3,277.39 points it ended a day earlier.

The market capitalisation was higher yesterday after admitting additional shares of Infrastructure Credit Guarantee Company Plc (InfraCredit) to the platform after regulatory approval. The firm joined the NASD Exchange on March 6.

The company, backed by the Nigerian sovereign wealth fund, added 11.166 million units to bring its volume to 26.421 million.

At the trading session, FrieslandCampina Wamco Nigeria Plc gained N1.91 to close at N38.50 per unit versus N36.59 per unit, Mixta Real Estate Plc rose by 41 Kobo to N4.55 per share from the previous closing value of N4.14 per share, Lagos Building Infrastructure Company (LBIC) Plc grew by 17 Kobo to N2.63 per unit from N2.80 per unit, and Paintcom Investment Plc improved by 2 Kobo to N10.74 per share from N10.72 per share, while Geo-Fluids Plc declined by 22 Kobo to N2.00 per unit from N2.22 per unit.

The volume of transactions surged by 9,665.9 per cent to 18.1 million units from 185,449 units, the value of transactions soared by 7,174.3 per cent to N192.9 million from N192.9 million, and the number of deals rose by 81.8 per cent to 20 deals from 11 deals.

Impresit Bakolori Plc ended the day as the most active stock by volume (year-to-date) for trading 533.9 million units worth N520.9 million, trailed by Industrial and General Insurance (IGI) Plc with 71.2 million units valued at N24.2 million, and Geo Fluids Plc with 44.6 million units sold for N90.2 million.

FrieslandCampina Wamco Nigeria Plc also remained as the most active stock by value (year-to-date) with 14.5 million units valued at N559.2 million, followed by Impresit Bakolori Plc with 533.9 million units worth N520.9 million, and Afriland Properties Plc with 17.8 million units sold for N365.0 million.

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Economy

Naira Crashes to N1,629/$1 at Official Market, N1,625/$1 at Black Market

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By Adedapo Adesanya

The Naira witnessed a depreciation of 1.05 per cent or N16.97 against the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Thursday, April 10, exchanging at N1,629.94/$1 compared with the previous day’s rate of N1,612.99/$1.

In the same official market, the Nigerian currency, however, traded flat against the Pound Sterling and the Euro during the session at N2,085.01/£1 and N1,805.64/€1, respectively.

As for the black market, the domestic currency depreciated against the greenback yesterday by N5 to sell for N1,620/$1, in contrast to the N1,615/$1 it was exchanged at midweek.

The Naira had stabilise on Wednesday in the spot market after President Donald Trump of the United States announced a 90-day pause on tariffs for more than 75 nations, including Nigeria, that did not retaliate to his sweeping duties announced a week ago.

However, China, which recently placed steeped retaliatory tariffs on US goods, did not get any relief, as Mr Trump hiked the total levy on Chinese goods to 125 per cent.

Market analysts raise worries about a secondary effect of a trade war between the US and China, and how it can have effected on other nations’ economies.

Even as the Central Bank of Nigeria (CBN) continued to prop up the local currency, in the last week, the Naira has exchanged between the N1,570 and N1,620 mark.

Meanwhile, the cryptocurrency market was mixed on Thursday after exchange-traded funds (ETFs) saw outflows even as prices surged after President Trump announced a 90-day pause in tariffs on most countries, excluding China.

The dwindling demand can be attributed to the macroeconomic uncertainty caused by the US-China trade tensions that has led to macro investors selling every asset, including crypto ETFs, for cash.

Litecoin (LTC) gained 1.9 per cent to trade at $75.88, Cardano (ADA) jumped by 1.4 per cent to $0.6321, Dogecoin (DOGE) appreciated by 0.3 per cent to $0.1575, and Solana (SOL) rose by 0.2 per cent to $116.94.

On the flip side, Ethereum (ETH) dropped 3.6 per cent to settle at $1,533.42, Bitcoin (BTC) shed 1.2 per cent to end at $81,017.23, Ripple (XRP) slumped by 0.2 per cent to $1.99, and Binance Coin (BNB) went south by 0.1 per cent to $579.45, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.

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