Flash Report / Nigeria

Nigeria: Real return goes further south; inflation now at a 29-month high

  • Nigeria’s headline inflation touched a 29-month high of 13.22% in the month of August
  • We see inflation treading even higher for the rest of the year
  • A dire outlook for real returns on NGN instruments; in contrast Kenya and Egypt still offer positive real returns
Nigeria: Real return goes further south; inflation now at a 29-month high

Nigeria’s headline inflation touched a 29-month high of 13.22% in the month of August – a 40 bps increase from July and 25 bps higher than consensus expectation (12.97%). This was a net impact of the currency devaluation in parallel markets (which peaked at NGN475 in August), higher food prices, and higher transport costs, which together led to increases in both food and core inflation. On a monthly basis, inflation rose 10 bps to 1.34%.

Food inflation rose 51 bps to 16%, owing to increases in prices of farm produce and imported foods, particularly of bread and cereals, potatoes, yam and other tubers, meat, fish, fruits, oils and fats and vegetables. Meanwhile, increases in prices for transportation, medical services and pharmaceutical products pushed up core inflation by 42 bps to 10.5%.

We see inflation trending even higher for the rest of the year, owing to the impact of: (1) currency devaluation (with even more pressure from President Buhari’s recent directive to restrict FX access for food imports, if effected); (2) the hike in electricity tariff which took effect from 1 September; (3) the increase in PMS prices, following the deregulation of prices and the government’s decision to pull the plug on subsidies allowing for more market-reflective prices; and (4) the increase in transport costs. The only slight positive for inflation that we see will come from the dissipating base year effect of the border closure from September.

The inflation outlook paints a dire picture for real returns on NGN instruments – MPR (-0.72%), 1-year OMO (-3.4%) and 1-year NTB (-9.9%) – as yields (particularly on NTBs) are pressured with increased system liquidity. Meanwhile, peers such as Egypt (10-month low 3.4%) and Kenya (10-month low 4.36%) have recorded declines in inflation, meaning real returns remain positive. We retain a negative outlook on Nigeria in the near term.


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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...

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