February inflation beats analysts’ estimate, down 70 basis points

By Julius Alagbe

Analysts have failed to correctly predict February headline inflation, the recent data on change in general prices of goods and services has shown. Ahead of the release made available by the Nigerian Bureau of Statistics, some pundits have said that headline inflation will surge to 11.4% from 11.37% reading in January. Surprisingly, headline inflation follows similar pattern for January as rate of increase in general prices of goods and services reading slide to 11.3% year on year.

Afrinvest, an investment banking firm, in its note said “This is significantly below the analysts’ average estimate of 11.5% reported by Bloomberg. We observe that headline inflation was slower than expected due to lower M-o-M inflation at 0.73% in February as against 0.74% in January, the lowest since December 2017”.

Financial Derivative Company had predicted that the month inflation reading would increase to 11.4% among others.

“The moderate increase in consumer prices between January and February 2019 reflects the downtrend in core and food inflation on M-o-M basis. We highlight that February’s month-on-month (M-o-M) inflation translates to an annual inflation rate of 9.1%, which shows that prices are generally stable. Indeed, inflation has taken a different turn since reaching a seven-month high of 11.4% in December 2018, despite the election period which is usually associated with elevated prices”, Afrinvest reckoned.

Meanwhile, core inflation also followed a similar path, moderating to 9.8% Y-o-Y in February 2019 from 9.9% in the previous month, as prices rose at a slow pace of 0.7% M-o-M compare with 0.8% in January. Single-digit core inflation is a sign that prices are broadly stable, and it creates the room for monetary easing. In the absence of adjustments to prices of electricity and petrol, we expect core inflation to remain stable.

Food inflation moderated for the second consecutive month by 0.4 ppts to 13.5% Y-o-Y in February 2019, supported by a marginal reduction in M-o-M food inflation to 0.82%.

According to Afrinvest; “Despite the positive trend of late, we note that food inflation remains sticky compared with the monthly average of 10.0% in the five years preceding the 2016 economic recession. This is expected as the harvest season which previously supported a moderation in food prices has given way to the planting season”.

“The planting season typically lasts till early June; thus, we expect food inflation to remain elevated through June 2019. This is likely to be worsened by insecurity in the middle-belt and the rest of Northern Nigeria, which remains a persistent drag to agriculture output”, Afrinvest added.

Ahead of the second meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) between 25th and 26th March, we believe February inflation numbers should make committee members more comfortable with monetary easing.

The firm if of the opinion that the political environment is relatively calm, there is more clarity on the direction of the economy and interest rate hikes have been put on hold by the central banks of advanced economies.

“However, we do not foresee a reduction in the Monetary Policy Rate (MPR), which has been unchanged at 14.0% since July 2016. Instead, monetary easing would reflect the current stance of the CBN in the debt market, where yields have dropped by 0.4% post-elections and primary auctions are now less aggressive”, Afrinvest positioned.