March 2023 Inflation – Inflation rises for the third consecutive time this year

What shaped the past week?

Global: During the past week, major stock markets in the Asia-Pacific region experienced positive trading sessions as investors closely monitored China’s economic indicators, including its first-trimester GDP and industrial production growth figures, which failed to meet expectations. In addition, the Federal Reserve’s Beige Book report was in focus, as investors looked for clues on the state of the US economy. Meanwhile, Japan’s industrial output declined in March, and the country’s trade deficit was registered at $5.6 billion. Overall, the week was characterized by cautious investor sentiment and mixed market performance.

Major European stock markets experienced positive trading sessions as news such as the European Union’s agreement on semiconductor production and inflation data from the Eurozone and the United Kingdom held investors’ focus. Overall, cautious investor sentiment prevailed throughout the week, with fluctuations in major indices. Additionally, the British Office for National Statistics reported a decrease in economic inactivity, and German producer prices rose in March.

Stock markets in the US also experienced mixed trading sessions with traders monitoring first-quarter corporate reports, economic data, and statements from Federal Reserve officials to gain insight into the future of monetary policy in May. The week saw incoming earnings releases from major companies such as Goldman Sachs, Bank of America, Johnson & Johnson, and Lockheed Martin. In addition, the back and forth over the US Federal debt between the White House and the House Republicans garnered attention.

Domestic Economy: According to the National Bureau of Statistics, inflation rose to 22.04% y/y in March due to the lingering effects of the cash crunch and energy pressures. Similarly, the monthly headline index rose 15 basis points to 1.86% m/m in March, owing to higher food prices due to frontloading for the Ramadan season. Inflation is expected to rise in April due to increased demand from Easter and Ramadan, while the removal of fuel subsidy may keep inflation elevated in the coming months.

Equities: The local equities market saw profit-taking activity this week, resulting in a -1.04% w/w return for the ASI. Investors have been cautious, analyzing the latest earnings reports of listed firms. The banking space was hit hard, dropping 2.54% w/w, with ZENITHBANK (-12.38% w/w) leading the losses. The oil and gas sector also had a bearish week, with a -1.43% w/w return, mainly due to selling pressure in SEPLAT (-3.02% w/w). The industrial goods space saw a -0.17% w/w performance, mainly due to sell-side activity in WAPCO. However, the consumer goods space remained resilient and closed in the green, rising 0.17% w/w.

Fixed Income: The secondary market witnessed mixed trading activity, amid tight liquidity levels. The Debt Management Office (DMO) of Nigeria conducted its April bond auction, selling 368.66 million at stop rates ranging from 14.00% to 15.80%. Average yields on benchmark bonds remained mostly unchanged. In the NTB segment, bulls came out on top despite constrained liquidity levels, with the yield on the 330DTM easing 135bps to 11.59%. The OMO space was flat, with yields remaining at 4.0% levels for the week.

Currency: The Naira depreciated N0.42 w/w at the I&E FX Window to close the week at N463.67.

What will shape markets in the coming week?

Equity market: We anticipate a cautious of trading in the equities space, as investors digest the latest earnings releases.

Fixed Income: The outlook for the coming week is more optimistic driven by our expectations of improved liquidity due to the upcoming bond and NTB maturities, which could lead to increased trading activity.

March 2023 Inflation – Inflation rises for the third consecutive time this year In March, headline inflation rose to 22.04% y/y (Feb’23: 21.91% y/y) bucking  consensus expectation of a slowdown. While we anticipated that the high base from the previous year would allow for cooler figures in March, the lingering impact of the cash crunch and energy pressures pushed prices higher. Month-on-month, headline inflation rose to 1.86% m/m (Feb’23: 1.71% m/m), mainly due to higher food prices in March.

Religious festivities propel food inflation further

In March, food inflation increased by 10 basis points to 24.45% y/y (Feb’23: 24.35% y/y). Higher farmgate prices (+35% y/y) drove the increase, with oils, bread and cereals, potatoes, yams and other tubers, fish, fruits, meat, vegetables, and spirits rising the fastest. Similarly, food inflation increased to 2.07% m/m in March (Feb’23: 1.90% m/m) due to frontloading ahead of the Ramadan and Easter.

Core inflation reverts to trend

Following a slowdown in February due to a relatively stable exchange rate, core inflation reversed to trend, rising to 1.84% m/m in March (Feb’23: 1.06% m/m). When annualised, core inflation rose to 19.86% y/y (Feb’23: 18.84% y/y). The  highest pressures were exerted on the prices of gas, fuel, transport, medical  devices, and vehicle spare parts, underscoring increased energy and currency pressures.

Mixed pressures could keep inflation on the rise

In April, we see room for a further rise in inflation to due to a combination of  pressures affecting both the food and core segments. For the food segment, we believe that the increased demand from religious activities (Easter and Ramadan festivities) could prop demand for food and impact the month-on-month figure. The core segment may be affected by persisting energy and currency pressures, despite increased availability of cash following the reintroduction of previously outlawed old notes. With this in mind, we expect inflation to hit 22.18% y/y this month.

For the rest of the year, we anticipate that the scheduled withdrawal of fuel subsidies by half year could put pressure on consumer prices in the coming months. As a result, headline inflation could average 23.11% y/y in 2023 (2022:

18.76% y/y).