Headline Inflation Eases Further, Closes at 16.05% in July 2017

The National Bureau of statistics (NBS) recently released the Consumer Price Index for the Month of July. According to the NBS, the consumer price index (CPI) continued to decline for the sixth consecutive month, down by 0.05 percentage point to 16.05% year-on-year (vs 16.10% recorded in June). Overall, the report indicates that increases were recorded in all COICOP (Classification of Individual Consumption by Purpose) divisions that contribute to the headline index. 

The headline index inched up by 1.21% in July on a month-on-month basis , 0.37 percentage point lower than 1.58% recorded in June. We observe that food and garment prices have exerted pressure on the index, with the highest price increases recorded in meat, oil & fats, bread & cereals, vegetables and fish.  The urban index rose 16.04% year-on-year in July, 0.11 percentage point lower than the 16.15% recorded in June, while the rural index inched up by 0.07 percentage point  to 16.08% in July from 16.01% in June. 



Core Sub-Index Continues to Ease; Down 12.20%

The core sub index which corrects for volatile agricultural prices continued to ease on a year-on-year basis. It eased to 12.20% by 0.30 percentage point from 12.50% recorded in the previous month of June. The index increased on a month-on-month basis by 1 percentage point in July, 0.32% lower than the 1.32% increase recorded in June. This was due to high prices recorded in items such as furniture, clothing materials, books and stationary, medical services, household utensils and accommodation services.

 Food Sub-Index rises to 20.28%

The food sub-index continued its upward rise into the month of July, inching up to 20.28% by 0.37 percentage point from June index of 19.91%. This is the highest year-on-year increase in food inflation since 2009. The was spurred mainly by increase in prices of meat, fish, oil and fats, coffee, tea, cocoa, potatoes, bread and cereal, yam and vegetables. On a month-on-month basis, the index rose by 1.52 percentage points in July (June: 1.99%).


The continuous easing of inflationary pressure since the turn of the year is consistent with the close convergence between the official and parallel market exchange rate. The opening of the NAFEX window by the CBN has improved access to foreign exchange for manufacturers and other traders. However, we note that inflation has moderated at a slower pace than we expected due to high food prices. Thus, we expect sustained inflationary pressure to continue to squeeze household consumption spending in the near term.

In the investment environment, we do not expect any major alteration in investment patterns. We expect the equities market to continue the bullish run it has witnessed lately. The All Share Index has gain almost 40% YTD. The fixed income space remains attractive for risk averse investors due to high yields on assets.

Outlook for Inflation

We expect inflationary pressure to continue to ease due to the factors earlier discussed as well as the high base effect.  With the harvest season approaching, we expect a downward pressure on food prices, albeit moderate. We expect that inflation will stay within the 16 percent band in August 2017.




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