United States – Disinflationary Trends Remain in the Horizon
During the week, the US Bureau of Labor and Statistics released the Inflation Report for November 2023. As culled from the report Headline Inflation advanced by 3.1% YoY, compared to 3.2% YoY in October. For more clarity, Food Inflation rose 2.9% YoY (vs 3.3% YoY in October) while Core Inflation rose 4.0% YoY (same as October). The Energy Index further contracted by 5.4% YoY (vs -4.5% YoY in October).
Source: BLS, Zedcrest Wealth
The tepid decline in headline CPI can be attributed to several factors such as dwindling energy prices, and declining home and rent prices. We believe that this further justified the Fed’s decision to leave the interest rate at 5.25% – 5.50% at its last FOMC meeting during the week.
Source: BLS, Zedcrest Wealth
Looking ahead, we anticipate that the Federal Reserve will maintain interest rates at their current levels until the first half of 2024, given the proximity of inflation to the 2.0% target benchmark. Moreover, considering the ongoing decrease in energy prices and the unfavorable developments in China that have had repercussions on global demand, we do not foresee an upward trend in inflation, assuming all other factors remain constant.
Source: BLS, Zedcrest Wealth
Bank Of England – Another Wait and See Approach
The majority decision of the Monetary Policy Committee (MPC) at the Bank of England (BoE) was to keep the bank rate steady at 5.25%, with a voting split of 6 – 3. Among the members, three voted in favor of a 25 basis points increase, while six members favored maintaining the rate at 5.25%. In their evaluation, the Committee observed that real GDP aligned with their projections, but inflation and wage growth fell below expectations. Consequently, the committee highlighted the significance of closely monitoring labor market conditions, wage growth, and services price inflation to assess the potential for future adjustments to the interest rate.
Source: ONS, Zedcrest Wealth
Domestic Economy
Inflation – Breaking New Heights
During the week National Bureau of Statistics released the inflation report for November 2023. As culled from the report Headline Inflation advanced by 87bps to print at 28.20% YoY. For context, Food Inflation increased by 132bps to 32.84% YoY. However. Core Inflation dipped 19bps to 22.38% YoY. On a month-on-month basis, Headline (+2.09), Food (+2.42%), and Core (+1.53%) all witnessed an uptrend at a faster pace compared to the previous month. We attribute the increase to elevated food prices and FX volatility.
12-Month Trend Analysis of Core, Food, and Headline Inflation (YoY %)
Source: NBS, Zedcrest Wealth
Food And Core Inflation
Food inflation surged by 132bps to 32.84% YoY in November 2023, (its highest level since March 2004 – 32.64% YoY) compared to 31.52% YoY in October 2023. This increase can be attributed to heightened haulage costs following persistent increases in the prices of Petrol and Diesel, and the FX volatility. Food inflation grew by 2.42% MoM as Fuel Scarcity and FX pressures continue to weigh in on the sector. While we saw an improvement in Food inflation last month, a development we attributed to improved food supply following the commencement of harvest season. We opine that the recent petrol scarcity and Deeper FX volatility have caused the surge in Food Inflation. Also, impending structural issues (inadequate infrastructural development, insecurity, and elevated haulage cost continue to impede the food supply in the country.
Core inflation slowed to 22.38% YoY in November (vs 22.58% in September). The tepid growth follows the expectation that there might have been a shift from people’s focus on certain items in the market space.
November 2023 Headline, Core, and Food Inflation Figures
Source: NBS, Zedcrest Wealth
Inter-State Inflation Disparity – A Major Worry
In our previous inflation reports, we explained the causes of disparity in inflation rates across states. This remains unabated as we still see the impacts of structural issues that have plagued the economy over the years. As seen below, Inflation disparity across all states remains a major factor that the government needs to consider.
Top 10 States with the Highest Food Inflation for November 2023
Top 10 States with the Lowest Food Inflation for November 2023
Source: NBS, Zedcrest Wealth
Looking Ahead, we expect inflation to remain unabated in the coming months as stated earlier in last month’s inflation report. Our prognosis relies on the point below.
The current foreign exchange (FX) volatility is anticipated to exert an influence on prices. Furthermore, the characteristic price changes observed in Nigeria, where the prices of items do not revert to normal levels even after the initial cause of the increase has subsided, will likely contribute to the prolongation of elevated general prices.
Staying abreast of these factors, we maintain our outlook for unabated inflation, emphasizing the importance of addressing structural issues in the food sector and closely monitoring the impact of FX volatility on pricing dynamics.
The Nigerian Equities Market –Santa Rally Still Going Strong
The Nigerian equities market closed the week on a positive note for the 6th consecutive, as the NGX All-Share Index (ASI) advanced 118bps WoW to settle at 72,389.23 points. The Year-to-date (YTD) returns settled at 41.24%. Leading the gainer’s chart are INFINITY (+57.02% to NGN2.82), SCOA (+32.80% WoW to NGN1.74) and DAARCOM (+32.09% WoW to NGN0.46). The top losers for the week were NSLTECH (-12.70% WoW to NGN0.63), ETERNA (-12.29% WoW to NGN11.55) and THOMASWY (-10.47% WoW to NGN2.91). We expect a sustained bullish run on the exchange.
The Nigerian Fixed Income Market – A Bullish Close for the Fixed Income Market
During the week, the Treasury bills secondary market exhibited a bullish trend, with the average yield across the market experiencing a week-on-week decline of 263 basis points to 8.7%. This positive performance can be attributed to two key factors: firstly, auction participants shifted their focus to the secondary market to compensate for unsuccessful bids at the primary market auction (PMA) held on Wednesday, and secondly, market participants selectively opted for instruments offering attractive yields.
In this week’s NTB auction conducted by the Debt Management Office (DMO), instruments totaling NGN13.58 billion were offered, comprising NGN1.10 billion for the 91-day, NGN1.28 billion for the 182-day, and NGN11.20 billion for the 364-day. The auction witnessed significant competition, with the total subscription level reaching NGN1.57 trillion (bid-to-offer ratio: 115.7x compared to the previous auction’s 16.9x). Ultimately, the DMO over-allocated bills worth NGN263.58 billion, broken down into NGN728.00 million for the 91-day, NGN6.35 billion for the 182-day, and NGN256.51 billion for the 364-day, with respective stop rates of 6.25% (previously: 9.00%), 11.00%
