Highlights

Consistent with our projection, the National Bureau of Statistics (NBS) reported a sustained moderation in August 2024 Headline Inflation, which printed at 32.15% year-on-year (July 2024: 33.40%). The figure slightly undershot our forecast of 32.17% by 2 basis points. This decline was anchored by the high base effect from August 2023. On a month-on-month basis, Headline Inflation also eased to 2.22% (July 2024: 2.28%).

Food Inflation remained the linchpin of the moderation in Headline inflation, recording a second consecutive year-on-year decline to 37.52% in August 2024 (July 2024: 39.53%). On a month-on-month basis, Food Inflation eased by 10 basis points to 2.37% (July 2024: 2.47%). Conversely, Core Inflation deviated from the trend, with both year-on-year and month-on-month rates rising by 11 basis points to 27.58% and 2.27% respectively (July 2024: 27.47%, and 2.16%).

Outlook

The elevated PMS price has tempered our optimism for a moderation in Headline Inflation for the remainder of 2024, as we had initially anticipated the impact of base effect. The knock-on effect of higher PMS price on transportation cost, and energy expenses for businesses raises concerns for inflation in near term.

Policy Expectation

We expect the Monetary Policy Committee (MPC) to consider the consecutive declines in Headline Inflation during its upcoming meeting scheduled for September 23–24, 2024. This will likely impact its decision to either maintain or slowly raise the monetary policy rate (MPR). While we recognise that an additional rate hike could spell more troubles for businesses, it’s important to note that the drop in Headline Inflation is primarily due to high base effect and seasonal harvest gains.

Core Inflation, however, remains high, reflecting persistent price pressures emanating from the double whammy of elevated energy prices and naira depreciation. Therefore, we opine that a rate cut at this stage may be premature. As a result, we anticipate the MPC will choose to HOLD the MPR steady at its meeting.

Click here “August 2024 Inflation – Moderation Outlook Disrupted as Higher PMS Price Poses Threat” to view the full report.