CPI moderates again in November … closes at 15.90% y/y

The National Bureau of Statistics recently released its Inflation report for the month of November, which showed that headline inflation declined for the tenth consecutive month to 15.90% y/y in November 2017 (Vs.15.91% y/y in October). The report revealed that increases were witnessed in all divisions that contributes to the headline index.

However, after five consecutive months of decline, headline inflation increased month-on-month by 0.02 percentage point to 0.78% in November 2017 (Vs. 0.76% in October 2017). We believe this could be attributed to increased demand for food ahead of the festive season.


Food index eases … down to 20.30% y/y

The food index in November 2017 dropped by 0.01 percentage point to 20.30% y/y. On a month-on-month basis, the index ended its five consecutive months of decline, increasing 0.88% in November (Vs. 0.85% in October). The upward pressure recorded in the index was due to increases in the price of bread and cereal, milk, cheese, eggs, coffee, tea, cocoa, fish and oil and fats.

Imported food inflation increased 15.8% y/y in November (vs.15.3% y/y in October), making it the fourth consecutive month of increase. However, the imported food index slowed on a monthly basis to 1.2% (vs.1.3% in October). Given the stability in exchange rate in the various FX markets, we believe the recent trend could be as a result of an increase in the prices of food items globally.

Core sub-index climbs to 12.20% y/y

The core sub-index which corrects for volatile prices, settled at 12.20% y/y in November (vs.12.14% y/y in October). On a month-on-month basis, the index increased by 0.77% in November against 0.76% in October. We believe the y/y increase recorded in core inflation could be linked to a surge in demand, as mentioned earlier.


Although the moderation in inflation has been slower than expected, the gradual easing of consumer prices helps to prevent further weakening of the purchasing power of consumers. In addition, the continued reduction in both headline and core inflation provides room for easing, supporting the recent guidance of the CBN for monetary easing in H1’18.

For investment, we do not expect any major alteration in investment patterns. However, in view of our outlook for the easing of monetary policy in 2018, we believe that some investors would prefer the equities space in the search for high returns.

Outlook for Inflation

We believe that headline inflation will remain at 15.9% y/y in December 2017, though rising slightly mainly as a result of a spike in demand during the festive season.

In 2018, we expect a moderation in inflation to around 12% y/y, driven mainly by continued FX stability. We note that the high base in the food index as a result of the spike in domestic food prices in 2017 will also support the moderation in inflation. Risks to our projection include remote factors such as a weakened exchange rate and an adjustment of electricity tariffs and fuel prices.

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