February 20, 2012
The Composite Consumer Price Index which measures inflation rose sharply to 12.6 percent year-on-year in January 2012. This figure is 2.2 percentage points higher than 10.3 percent recorded in the previous month. The monthly composite CPI rose significantly by 3.4 percent when compared with December 2011.
The increase in the headline index, composed of the “Core” and Food indices, was due to the partial removal of the subsidy on the Premium Motor Spirit (petrol) that pushed up prices of many food and non-food items as a result of the increase in transportation costs.
The urban inflation rate recorded a sharp increase when compared with the rural figure in January 2012. The year-on-year increase for Urban and Rural dwellers was 16.4 and 9.7 percent respectively. The urban All Items index rose by 5.3 percent on month-on-month, while the corresponding rural index increase by 1.8 percent when compared with their preceding month.
The inflationary impact of the partial subsidy removal was therefore largely concentrated in the urban areas relative to the rural areas where most Nigerians live.
The biggest contributors to the consumer inflation were the high prices of some food items, liquid fuel and transport fares, and other miscellaneous goods and services which need liquid fuel and or transport fares for providing their services.
The percentage change in the average composite CPI for the twelve-month period ending January 2012 over the average of the CPI for the previous twelve-month period was 10.9. This was slightly higher than the 10.8 percent recorded for the preceding month. The corresponding 12-month year-on-year average percentage changes for urban and rural indices were 9.1 and 12.3 respectively.
The CPI and consequently, the inflation rate though significant were moderated by several demand factors in January 2012. Firstly, due to proactive monetary policy from the Central Bank of Nigeria (CBN) in the second half 2011, Inflation was expected to drop to between 8% and 9% in January 2012 (assuming there was no partial removal of subsidy).
This earlier tightening by the CBN therefore helped to curtail the overall impact on inflation in January 2011 following the partial removal of subsidy. At the same time, the slow release of funds by the government’s FAAC reduced effective demand by reducing available resources for backing increased consumption and expenditure during the month of January.
In January 2010, the level of the Composite Food Index was higher than the corresponding level a year ago by 13.1 percent. This was higher than 11.0 percent recorded in the previous month.
The rise in the food inflation was mainly due to the increasing cost of yam, other tubers, cooking oil, meat, fruit, vegetables and beverages. The average annual rate of rise of the index was 10.5 percent (year-on-year) for the twelve-month period ending January 2012.
The “All items less Farm Produce” index which excludes the prices of often volatile agricultural products rose by 12.7 percent year-on-year, while the average 12 month annual rate of rise of the index remained stable at 11.8 percent for the twelve-month period ending January 2012.
The increase was mainly on transport fares, liquid fuels and other services (based on personal services such as hair dressers, shoe cleaners, personal assistants, etc) that require transportation to provide their services, or petrol, in the case of barbershops for example, to power generators. Thus such services had to factor in price increases of petrol and this affected the price of their services.