The National Bureau of Statistics (NBS) announced on Monday that inflation rose further to 12.3 percent year on year y/y in November, from 11.7 percent (y/y) in October and 11.3 percent y/y in September.
The November inflation figure exceeded market consensus of 12.0 percent y/y. Despite the higher November inflation figure, bond yields barely moved during Monday’s trading session, indicating that the market are not particularly concerned about the CPI outlook and that it still anticipates a positive trend on a multi-month basis say analysts.
“As long as the medium-term expectations for lower inflation and a turn in the monetary policy cycle persist, and decent foreign capital flows into the bond market continue, further yield compression should still materialise over time,” said Samir Gadio, an emerging markets Strategists at Standard Bank London.
“In this context, the 19 Dec auction that will offer N16.4bn of April 17s (trading at 12.01 percent on 17 Dec), N30.0bn of June 19s (11.93 percent) and N30.0bn of Jan 22s (11.88 percent) will be a good opportunity to build up a position at the long end.”
Gadio says that a continued decline in FGN bond rates in the immediate short-term may prove a challenge given that the 10-y bond yield is already negative in real terms.
The moderate rebound in inflation over the past two months will also make it more difficult for the CBN to start easing monetary policy at the Jan MPC and will probably delay any cuts in the MPR until the March/April 2013 MPC meeting, he adds.
Consumer prices increased 0.6 percent month on month m/m in November, from 0.9 percent m/m in Oct and 1.0 percent m/m in September, appearing to suggest that inflation has stabilised lately in monthly terms, even though it printed above the historical trend in November (an average of 0.0% between 2006 and 2011).
Food inflation (50.7 percent of the CPI basket) edged up to 11.6 percent y/y, from 11.1 percent y/y in Oct and 10.2 percent y/y in September, but was still below the yearly high of 12.9 percent y/y recorded in May.
On a m/m basis, overall food inflation receded to 0.7 percent in Nov, from 1.0 percent in October and 1.1 percent in September, even though it printed above the typical m/m figures historically registered in November.
Analysts say that while Nigeria’s recent floods have pushed up food inflation, the impact appears to have remained relatively contained.