NIGERIA: Headline inflation rose to a multi-year high of 25.8 percent y/y in August, 1.7ppt higher than the July print and the most significant monthly movement since 2016.
Food inflation remains a key driver, now reaching 29.3 percent y/y – up 2.4ppt from July and the highest reading since September 2005. The acceleration in food inflation was mainly driven by domestically-produced food as these prices continue to reflect the impact of the petrol subsidy removal. Core inflation rose to 21.2 percent y/y from 20.5 percent in July. For other components of the CPI basket, substantial moves occurred in transport inflation, rising to 27.1 percent y/y from 26.3 percent, as well as housing, water, electricity, gas and other fuel, which accelerated by 21.8 percent y/y from 19.9 percent.
On a month-on-month basis, headline inflation increased by 3.18 percent, 0.29ppt above the June print. Food inflation rose 0.41ppt to 3.85 percent m/m, while core inflation rose 0.07ppt to 2.18 percent. We maintain our expectation for a 100bp hike to take the MPR to 19.75 percent at the September Central Bank of Nigeria MPC meeting and another 100bp at the November meeting.
That said, we caveat that there is the possibility of a tamer than forecast hike given concerns raised by MPC members around current economic reform pressure on the domestic economy. In addition, we expect the central bank to leverage open market operations and other liquidity management tools to moderate excess naira liquidity.
Still in Nigeria, on 15 September, President Bola Ahmed Tinubu approved the nomination of Dr Olayemi Cardoso as the new governor of the Central Bank of Nigeria for an initial term of five years. This nomination is subject to confirmation by the Senate. Once confirmed, Dr Cardoso will take over from Acting Governor Folashodun Shonubi who has held the position since June following the suspension of former Governor Godwin Emefiele. Dr Cardoso is a banker and chartered stockbroker and has served as commissioner in the Lagos State Ministry of Economic Planning and Budget while President Tinubu was governor of the state. More recently, he was the Chairman of Citibank Nigeria Ltd up until 2022. President Tinubu also approved the nomination of four new deputy governors subject to confirmation by the Senate. They include Mrs. Emem Usoro, Mr. Muhammad Dattijo, Mr. Philip Ikeazor, and Dr. Bala M. Bello.
According to the Debt Management Office (DMO) Nigeria’s debt stock increased by
75.2 percent q/q to NGN87.38 trillion (US$113.42 billion) in 2Q23 from NGN49.85 trillion (US$108.3 billion) in 1Q23 and split 38.05 percent/61.95 percent between external and domestic debt. The increase was a result of currency devaluation as the external debt component was converted to local currency using the official exchange rate of USD/N770.38 as at 30 June 2023 (1Q23 exchange rate was 460.35). In addition, following the National Assembly’s approval in May to securitize the central bank’s NGN22.7 trillion ways and means advances to the federal government, the DMO has included the same in the debt stock. We estimate that the debt-to-GDP ratio could breach the government’s self-imposed 40 percent limit in 2023 from 23 percent in 2022.