A slight uptick in inflation to 1.09%, reflecting persistent cost pressures in core components expected in December

Coronation Research has said that ahead of the November inflation print, it anticipate the disinflationary trend to persist, albeit at a relatively slower pace, with headline inflation projected to ease to 14.30% y/y from 16.05% y/y in October.

“However, on a month-on-month basis, we expect a slight uptick to 1.09%, reflecting persistent cost pressures in core components. This upward
momentum is likely to be driven primarily by increased demand associated with the festive period, which typically heightens transport cost, restaurants and accommodation, as well as housing-related activities.

“The anticipated slight uptick in m/m headline inflation is largely driven by movements within the food and core CPI components. On the core side, inflation is set to rise due to seasonal increases in consumer demand and transport activities as traders prepare for the festive season, alongside higher restaurant, accommodation, and service costs driven by elevated festive-related demand.

“These pressures are reinforcing higher operating and logistics costs for firms, which in turn are keeping core inflation sticky. Likewise, after four consecutive months of decline, food inflation is expected to rise slightly as supply-side challenges intensify, on the back of insecurity issues in key producing regions and delays being experienced in moving produce to markets. Globally, food prices continued to ease, with the
FAO Food Price Index declining for the third consecutive month to 125.1 points in November.

Although wheat and maize prices edged higher due to Black Sea tensions and strong global demand, the broader softening helped limit imported food pressures. However, on the domestic front, the decline in Premium Motor Spirit (PMS) prices, as Dangote lowered its gantry price from N877 to N828 per litre, should support a mild easing in transport-related
costs.

“In addition, exchange rate conditions remained relatively stable despite a modest 1.72% depreciation to N1,446.74/US$1, thereby containing imported inflation and providing a degree of price stability across tradable goods.

Overall, while global and domestic disinflationary factors continue to offer support, sticky service prices and lingering structural cost pressures are expected to limit the pace of disinflation in November.

“For December, we expect a reversal of the current disinflationary trend, with inflation projected to rise sharply at year-end, largely reflecting a statistical base-year effect.

On month-on-month basis, we expect an uptick in headline inflation to persist, reflecting sustained festive-season demand pressures, elevated transport activities associated with holiday travel, and continue cost pass-through from higher logistics and service-sector prices.

In addition, food prices are likely to remain under upward pressure as tighter market supplies, insecurity in key producing regions, and increased yuletide consumption.