Inflation Expected To Spike Further As Negative Sentiment Is Expected To Persist

Inflation Report – September 2021

Headline inflation grew by 16.47% YoY in January 2021, 0.71% higher than 15.75% recorded in December 2020; food inflation grew by 20.57% YoY in January 2021, 1.01% higher than 19.56% recorded in December 2020; while core inflation stood at 11.85% YoY in January 2021, 0.48% higher than 11.37% recorded in December 2020.

In January 2021, headline inflation increased by 1.49% MoM, a 0.12% decline from the rate of 1.61% that was recorded in the previous month. The yearly average rate rose to 13.62%, 0.37% greater than 13.25% recorded in the previous month.

Both the food and core sub-indexes contributed to the uptick, but we saw an increased magnitude from the core segment relative to the change seen in previous months, reflecting the rise in energy prices.

The persistent rise in the food inflation metric continues to serve as a concern, as well as the exchange rate crisis that the economy is faced with. However, there was a noticeable slowdown in the month-on-month increase in the headline index, as the economy slightly eased out of the high year-end spending in December 2020.

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The food index rose by 1.83% MoM, a 0.22% decline from the rate of 2.05% that was recorded in the previous month. The yearly average rate rose to 16.66%, 0.49% greater than 16.17% recorded in the previous month. The decline in the food index on a month-on-month basis largely reflects the impact of the slowdown in food demand following the sharp uptick in food purchases in December 2020.

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In January 2021 core inflation stood at 1.26% MoM, up 0.16% from 1.10% recorded in the previous month. The yearly average rate rose to 10.52% last month, 0.21% greater than 10.31% recorded in the preceding month.

The highest increases were recorded in prices of Passenger transport by air, Medical services, Hospital services, Passenger transport by road, Pharmaceutical products, Paramedical services, Repair of furniture, Vehicle spare parts, Motor cars, Miscellaneous services relating to the dwelling, Maintenance, and repair of personal transport equipment.

The year-on-year rate of inflation continues to reflect the grim economic reality of Nigeria as we saw a further uptick in the headline index as well as in the food and core categories. Most of the drivers that supported and sustained the inflationary pressure in 2020 have persisted in the new year.

Notably, we are still faced with declining food supply, increasing energy prices, a COVID-19 induced strain on our healthcare sector, and an exchange rate dilemma.

These factors have pushed up the cost of production, worsened the cost of transportation, caused medical services to be luxuriously priced, and left food prices on a northward trajectory.

While we noticed the slowdown in the month-on-month inflation rates for the headline index and the food sub-index, this trails our expectation of a slight moderation in demand and monthly inflation following December’s buy frenzy, but does not signify any meaningful improvement in the price trajectory for the economy.