Nigeria’s Inflation Rate to Slowdown 30Bps– Afrinvest

Nigeria’s Inflation Rate to Slowdown 30Bps– Afrinvest

Despite higher prices paid on petrol pump prices across the nation in the latter part of 2022, analysts estimate a lower inflation rate for December. In a market brief released, investment banking firm, Afrinvest Limited, said a high base-year effect will spur the first disinflation in 11 months.

The statistics office is expected to release the December 2022 inflation report next week.  Headline inflation was reported at 21.47% in November 2022 after a sustained month-on-month increase.

“Our model suggests that for the first time since January 2022, the year-on-year headline inflation rate would moderate by at least 30bps to 21.2% from 21.5% in the prior month”, Afrinvest said in its market note.

The investment firm explained that a close analysis of the headline inflation components suggests that the projected moderation would mainly be driven by a high base-year impact on the food inflation sub-component which analysts estimate would also fall by about 60 basis points to 23.5% from 24.1% in November.

Afrinvest analysts said on a month-on-month analysis, they expect the headline inflation rate to nudge up to 1.6% (from 1.4%), driven by increases in both the food (up to 31bps to 1.7%) and core (up 15bps to 1.8%) components.

“In our view, the combined effect of price mark-up in December due to high festivity demand and persistent disruptions in agricultural activities (flooding and insecurity challenges) should drive m/m food inflation.

“On the other hand, the estimated increase in the m/m core inflation rate should stem from the spike in the local prices of energy goods, and negative impact on transportation cost and other services in the reviewed period”, it added.

On the positive, analysts also said they observed a waning pressure on the exchange rate in the parallel market in December, a major development that could also aid mild disinflation in the near term.

The average exchange rate in this market segment fell from around ₦807.25 per US$1.00 in November to ₦745.69 in December – the first moderation since November 2021.

“We suspect that the improvement might have come on the back of reduced speculation activities due to the ongoing mop-up of old higher denominations ahead of the validity deadline of 30th January 2023”.

Also, Afrinvest expressed the view that CBN’s upward adjustment of the Investors and Exporters FX window rate by 1.2% to ₦451.21/$1.00 in December contributed to the modest improvement in the exchange rate in the parallel market.

Analysts noted that adjustment further reduces the premium in the parallel market, thus anticipating that the headline inflation rate could moderate through Q1:2023 to 19.3%, due in part to the high-base year effect, low liquidity level, and recovery in the parallel market rate. # Nigeria’s Inflation to Slowdown 30bps – Afrinvest

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