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Data by the Nigeria Bureau of Statistics has indicated a slower pace of increase in the general price level in February with headline CPI of 17.78%, coming in lower by 94bps y/y.
This was driven by a decline in core sub-index.
Core inflation subsidies on higher base effect: On a y/y basis, the core index rose by 16% in February, 190bps lower than 17.9% uptick in January. This decline reflected a higher base effect of 2016 given the hike in electricity tariff during the period.
Food inflation remains high amidst rising domestic prices: That said, Food inflation jumped by 18.53% y/y in February driven by the faster pace of price increase in common staple food such as bread, cereal , milk etc.
M/m inflationary pressure trend higher: the m/m inflation reading was up by 1.46% in February, up by 45bps when compared to 1.01% jump in January. This may not be unconnected with the persisting upward pressure on domestic prices as reflected in the jump in food inflation.
Outlook: Going forward, we reiterate our expectation for continuous deceleration in inflationary pressure on a higher base effect of 2016. Having said that, we, however, see the potential for a move to a more liberal FX regime as a downside risk to the inflation outlook, given its implication for PMS pricing and exchange rate pass-through on input costs.
While the decline in headline CPI supports the expected shift to an accommodative monetary policy stance, we expect the MPC to maintain its stance in the immediate given the need  to keep system liquidity tight in defense of the local currency.