The National Bureau of Statistics (NBS) released the Consumer Price Index (CPI) data earlier today with headline inflation increasing by 14.23% (year-on-year). This represents a 52bps higher than the rate recorded in September (13.71%) marking the 14 months consecutive increase in inflation level since August 2019.
Similarly, the Headline index increased by 1.54% (month-on-month) in October 2020 indicating 0.06% rate higher than the rate recorded in September 2020 (1.48%).
The percentage change in the average composite CPI for the twelve months period ending October 2020 over the average of the CPI for the previous twelve months period was 12.66%, showing a 0.22% point from 12.44% recorded in October 2020.
Food inflation index tick higher continuously
Upward pressure in the prices of bread and cereals, potatoes, fish, fruits, alcoholic and beverages, yam among other tubers drove the composite food index upward by 17.38% compared to the 16.66% recorded in September 2020. Notably, food sub-index increased by 1.96% on a month-on-month basis indicating 0.08% points higher than the 1.88% in September.
However, core inflation which excludes the prices of volatile agricultural produce advanced by 11.14% (year-on-year) indicating an 0.56% increase when compared to the 10.58% in September.
Structural and COVID-19 Induced Impact on High Prices
Largely, Nigerian economy inflation remains driven by structural supply-side factors ranging from weaker exchange rate pass-through on the Core basket and Imported Food index to hike in PMS and electricity prices. Equally, disruption to the planting season earlier this year as a result of COVID-19 serves a major factor driving the food inflation sub-index.
On the policy stance of the government, the current monetary policy drive of the CBN which appears to have given up the objective of price stability for an “induced” FX stability and stimulating GDP growth through various development financing remains a pull to the high level of system liquidity driving yield continuously lower with resulting effect on demand-pull inflation.
However, with this policy mounting opportunity cost of higher domestic prices and tepid FX inflow due to fall in oil price, a deeper look at its broad impact on the GDP recovery from COVID-19 and employment level would be a major focus of the MPC in their next meeting on whether to stimulate the economy further via lower MPR while accommodating higher inflation with continuous negative real yield.
Inflation Outlook for the Month of November
With lingering factors such as the sustained border closure, the implementation of the new electricity tariff and a spike in the PMS pump price by the Petroleum regulators in the downstream sector, we expect further upward pressure across all inflation sub-index for the month of November with more weight towards the food inflation as the festive season approaches.