January 19, 2020 /07:50 PM / By FDC / Header Image
As widely anticipated, Nigeria's headline inflation (year-on-year) increased by 0.13% to 11.98% in December from 11.85% in November. This marks the 4th consecutive month of rising inflation. The last time this happened was in 2016 when Nigeria was neck deep in a recession. The average inflation for 2019 was lower at 11.39% compared to 2018's average of 12.15%.
All the sub indices excluding month-on-month inflation moved in tandem with the overall inflation rate. Core inflation increased by 34bps to 9.33%, food by 19bps to 14.67%, urban by 15bps to 12.62% and rural inflation by 11bps to 11.41%. The underlying drivers of the rise in the consumer price index in December consisted of the following.
Inflation Data Breakdown
Month-on-month inflation down to 10.75% annualized
Month-on-month inflation moved in the opposite direction with the headline inflation trend, decreasing to 0.85% (10.75% annualized) from 1.02% (13.0% annualized) in November. This is the 2nd consecutive monthly decline.
Food inflation and Core inflation on an upward trend
The food sub-index (Y-o-Y) increased to 14.67% from 14.48% in November. Major contributors to the increase include bread and cereals, meat, fish, potatoes, yam and other tubers. However, M-o-M, the sub-index slowed to 0.97% from 1.25% in November. The average food inflation rate in 2019 of 13.73% was a decline from 14.44% in 2018.
The core sub-index (inflation less seasonalities) increased to 9.33% from 8.99% in November. M-o-M core inflation also increased to 0.81% from 0.79% in the previous month due to increased cost of logistics (higher diesel price). On the average, core inflation rate in 2019 was much lower at 9.15% compared to 10.54% in 2018.
Rural & Urban Indices
Rural and urban inflation rate (year-on-year) increased to 11.41% and 12.62%, from 11.3% and 12.47% in November respectively. However, M-o-M, both rural and urban indices declined to 0.82% and 0.9% respectively.
State by State Analysis
Abuja recorded the lowest inflation rate of 9.77% in December followed by Kwara (9.93%) and Katsina (10.68%). Bauchi on the other hand recorded the highest inflation rate of 15.14%, followed by Kebbi (14.43%) and Plateau (14.34%).
We anticipate a buildup of inflationary pressures in subsequent months, driven by the lingering effect of supply bottlenecks (border closure, forex restrictions), higher logistics and distribution costs and the VAT increase to 7.5% that will be implemented February 1. The demand pull effect of the liquidity surfeit would also impact on consumer prices and disposable income. The expectation of higher costs of goods increases the possibility of a change in the CBN's current stance to a tightening position in the first quarter of the year. This may mean that the era of lower interest rates is slowly coming to an end.