The latest report from the NBS has headline inflation y/y at 15.1% in January.

Inflation again headed in the right direction

The latest report from the NBS has headline inflation y/y at 15.1% in January. This is the twelfth successive monthly slowdown, and by a welcome 24bps on this occasion. The driver was a decline in food price inflation from 19.4% to 18.9% y/y. Core inflation was flat, at 12.1% y/y. Our expectation, shared with wire services, was 15.2% y/y for the headline rate on base effects.

· The core measure has been stable since Q2 2017 because consumption demand softened in the recession and has remained soft. In contrast, food prices have been stubbornly high despite some easing over the past two months. Official explanations have been limited but the likely culprits are supply factors, notably insecurity and a pick-up in food exports. We suspect, in the absence of any data, that some harvests disappointed.

· Imported food prices picked up both m/m and y/y in January. Since fx has been available at stable rates since mid-2017, we assume that the driver is the higher US dollar price of the products.

· The bureau also tracks inflation by state, with the highest 18.6% y/y in Kebbi in January and the lowest 12.8% in Delta. However, it cautions that household baskets vary across states.

Sources: National Bureau of Statistics (NBS); FBNQuest Research

· We see the headline rate falling again to 14.4% y/y in February. Base effects will be positive through to June/July, when we see the rate just above 11.0%.

· This trend should prompt the monetary policy committee, once it has solved the issue of quorum, to trim its policy rate by 100bps in March, or more likely May.