GTI RESEARCH REPORT ON THE JUST RELEASED NIGERIA CPI

The Consumer Price Index (CPI) for July released earlier today shows a muted growth month-on-month. The CPI, also called headline inflation index stayed flat at 9.2%, same as was posted in June. At this point, the index retained its existing 7-month consecutive uptrend. Closer analysis shows that unchanged July CPI was mostly influenced by subdued prices recorded in major items such as; food and nonalcoholic beverages, housing, water, electricity, gas, fuels, furnishing and household equipment amongst others. Notably, the Food sub-index category which constitutes a greater weight in the CPI’s composition closed flat at 10.0% similar to the closing position as at June. Note that this rate is the highest this year and highest in the last ten months. 

Closer analysis revealed that the muted growth here were helped by subdued prices in items such as; meats, fish, fruits, potatoes, yams and tubers groups. The Core sub-index category (i.e., All Items less Farm Produce) bucked the trend recorded by the food sub-category by a faster growth to close at 8.8%. This represents 40 basis points higher than 8.4% reported in June. This is the seventh consecutive month uptrend in this category. The upsurge here was boosted by price increases recorded in items such as transportation, education, gas & fuels and miscellaneous goods & services. A further analysis on impact of prices on locations shows that both urban and rural dwellers’ indices recorded diverse growths.

 The urban index closed flat at 9.2%, same as was recorded in June while the rural index grew marginally by 10 basis points to 9.2% up from 9.1% recorded in June. The growth in the later was intensified by all the causative cost items mentioned above paragraphs. 

…Our take Recall that in our CPI report for June, we pointed out the potential challenges to the system in the light of recent petroleum products scarcity, transportation cost as well as heightened exchange rate disparity as major worrying signs. Significantly, all these filtered into July’s index. Regardless of the subdued price witnessed, we think that the recent dilemma around the oil prices as well as the impending Iran deal by the US government gives us reasons for concern and are potential challenges to the sustainability of this trend. Buttressing the above, the fact that Nigeria is a monoculture economy (mostly dependent on oil revenue for funding her capital projects) means that further challenges around the oil prices and supply would affect the economy directly. Given this scenario, pressure on the exchange rate would likely continue. It means that we might see the Naira trade weaker to the dollar. 

This would push up the prices of imported goods thereby instigating import-push inflation into the system. The only respite that appears to be in the horizon now is the fact that we are in the harvest season. This could be attributed to the subdued price recorded in the Food sub-index category. We think this is a temporary respite. Ultimately, the government needs to booster the economic space by heeding the calls for diversification of the economy so as to create multiple streams of revenue. 

OUTLOOK FOR AUGUST 2015 

We do not expect major departure from current CPI’s trend considering the fact that fiscal and monetary challenges continues to loom. The likely success of Iran’s deal and depreciating oil prices are equally reasons for our cautious outlook. We expect August price level to range between 9.2 – 9.3%.

source GTI Research