Inflation data show visible FX pass-through                      

Headline inflation in June picked up from 9.0 percent year on year (y/y) to 9.2 percent with data suggesting a pass-through from FX, according to FBN Capital.

The core measure rose from 8.3 percent y/y in May to 8.4 percent while food price inflation accelerated from 9.8 percent y/y to 10.0 percent.

“We see the impact of the weaker currency on the core measure, suggesting that importers are gradually passing their higher costs onto consumers. The NBS commentary noted that among the highest m/m price increases were those recorded for passenger transport by road, fuels and lubricants for personal transport equipment (which includes PMS, kerosene and charcoal) as well as maintenance and repair of personal transport equipment,” said FBN Capital in a recent note.

                                                                

The persistent fuel shortages resulted in higher transportation costs and fed into m/m increases of 1.3 percent and 0.8 percent for the categories of transport and housing, water, electricity, gas and other fuels respectively.

Imported food prices rose by 1.0 percent m/m in June after an increase of 1.3 percent in the previous month.

This is the only component composed solely of imports and has a 13.3 percent weighting in the index, according to FBN Capital.

CBN data show an average interbank rate of N197.0 per US dollar for May and an average bureau de change rate at N219.6 in the same month.

Headline inflation is now above the top of the CBN/MPC range of between 6 percent and 9 percent.

This would normally be grounds for monetary tightening, particularly as core inflation has increased for six successive months. The MPC next meets on 23 and24 July.

“We would not be surprised if it holds fire on both the policy rate and the naira exchange rate,” FBN Capital said

“Real yields across the curve are now close to six percentage points. However, devaluation fears are discouraging the offshore community from (re-)entry.”