Inflation: Higher Energy Costs Could Compound Spiralling Food Prices


Tuesday, November 17,  2020 / 11:49 AM / CardinalStone Research / Header Image Credit: WeeTracker

The National Bureau of Statistics has reported a 52-bps uptick in inflation to 14.23% YoY, that corroborated the sustained surge in cost of living across the country. The reading was ahead of our 14.02% YoY estimate and consensus forecast of 14.10% YoY. Food inflation (+72 bps to 17.38% YoY) remained the primary driver of the pressures as prices of food staples rose considerably in the review month. Core inflation also advanced by 56 bps to 11.4% YoY. On a month-on-month basis, headline inflation printed at 1.54%, its highest level since June 2017.


Proshare Nigeria Pvt. Ltd.


At least a duo of factors left food prices on the rise

Consumer prices have risen at a faster pace each month since February, and the trend is showing little signs of tapering. MoM inflation has accelerated from 0.87% in January to 1.54% in October. While the change may appear immaterial at face value, its impact could be significant when extrapolated over 12 months. Precisely, the former would translate to a 10.95% inflation over the next 12 months, while the latter suggests a 20.1% annual change in prices. The worrying trend has been primarily driven by higher domestic food inflation; whose monthly reading (1.96%) is currently at the highest level for 40 months. Unsurprisingly, food products with the steepest price increases were those mainly in the CBN's FX restriction list. These products include oils and fats, meats, vegetables, and cereals. However, the lower imported food inflation (relative to domestic food inflation) may suggest that the FX passthrough to food is mostly indirect. Besides, local food prices may have been affected by recent flooding in rice-producing regions and the lingering impact of land border closures. On the former, Rice Farmers Association of Nigeria estimates that flooding may have washed away over 30% of rice harvests this year.


Energy cost pressures to offset seasonal harvest impact

Rising energy costs from higher electricity tariffs and increases in petrol prices are likely to compound the impact of existing currency pressures and weigh on the price environment in the final months of the year. After the initial suspension of electricity tariff hikes for 3-weeks in October, the cost increase (capped at 30%) took effect on 18th October, with the impact on consumer prices likely to manifest in coming months. Additionally, the liberalization of the downstream oil and gas sector has introduced more volatility to fuel costs, which should track movements in global crude oil prices and other key variables. The most recent hike in PMS prices to between N168-170 per litre in November marks the fourth increase in PMS prices since June, and higher projections for crude prices suggest that pressures on this front may subsist in the near term. Already, higher energy costs and legacy issues appear to be counteracting the price-moderating impact of the harvest season, leaving legroom for sustained inflationary pressure in the last months of the year. All in, we expect inflation to print at 14.70% in November 2020 and retain our average inflation forecast of 13.2% for 2020.


MPC decision may be unaffected by inflation trajectory

The Central Bank of Nigeria cut its key interest rate by 100 basis points in September even though inflation was well above the 9.00% ceiling of its target range, positing that inflationary pressures were supply-side driven. In line with this position, the apex bank is unlikely to tamper with its policy lever due to inflationary pressures given that the drivers of price pressures are mostly the same. The apex bank, under the current CBN Governor, is yet to alter the monetary policy rate in consecutive meetings and is unlikely to break from trend due to the surge in consumer prices.

Proshare Nigeria Pvt. Ltd.


Related News

  1. Nigeria's Inflation Maintains Upward Trend Amidst Structural Rigidities
  2. Higher Energy and Food Prices Pushed Headline CPI to 14.23% YoY
  3. Headline Inflation Increases By 14.23% YoY In October 2020, 0.52% Higher Than September 2020 Rate
  4. Is Nigeria Headed for an Era of Hyperinflation?
  5. Nigeria's Inflation Rises to 13.71% as Concerns Mounts Up
  6. Headline Inflation Ticked up by 49 bps to 13.71% in September - PFI Capital
  7. Another Rise in Inflation Driven by Food Prices
  8. Persisting Food Pressure Pushes Headline Inflation to 13.71% YoY
  9. Inflationary Pressure Still Squeezing Pockets
  10. Headline Inflation Increases By 13.71% YoY In September 2020, 0.49% Higher Than August 2020 Rate
  11. Headline Inflation to Remain Stubbornly High in Q4'20
  12. Headline Inflation Climbed to a 29-month High of 13.22% in August 2020
  13. Headline Inflation Increases By 13.22% YoY In August 2020; 0.40% Higher Than July 2020 Rate
  14. Headline Inflation to Creep Up to 12.95%
  15. Food Price Pressure Stokes Inflation to 28-month High in July - PFI Capital
  16. Headline Rate Will Remain Unchanged at 12.8% YoY in August 2020 - FBNQuest
  17. Headline Inflation Increases By 12.82% YoY In July 2020; 0.26% Higher Than June 2020 Rate
  18. Headline Inflation Fast Approaching the 13.0% Threshold Due to Cost Push Factors
  19. Inflationary Pressure Likely to Decelerate in July - PFI Capital Limited
  20. Headline Inflation Crosses the 12.5% Threshold in June 2020
  21. Inflation Spikes Amid Rising Coronavirus Cases; Understanding The Numbers
  22. Headline Inflation Increases By 12.56% YoY In June 2020; 0.16% Higher Than May 2020 Rate
  23. Headline Inflation to Increase to 12.55%, Monthly Inflation to Dip in June 2020
  24. Headline Inflation Inched Up By 0.06% As Monthly Inflation Spikes
  25. Headline Inflation Increases By 12.40% YoY In May 2020; 0.06% Higher Than April 2020 Rate
  26. Annual Inflation to Increase Again Towards 12.50% as Monthly Inflation Jumps to 15.73%
  27. Inflationary Pressure, Weakening Pockets
  28. Headline Inflation Increases By 12.34% YoY In April 2020; 0.08% Higher Than March 2020 Rate
  29. April 2020 Headline Inflation Will Cross 13.0% - FDC
  30. Headline Inflation Increases By 12.26% YoY In March 2020; 0.06% Higher Than February 2020 Rate
  31. Nigeria's Economy Under Strain As Inflation Rate Rises
  32. Headline Inflation Increases By 12.20% YoY In February 2020; 0.07% Higher Than January 2020 Rate
  33. Headline Inflation Rate to Increase to 12.37% in February 2020 from 12.13% Reported in January 2020
  34. Inflation to Spike Again to 12.30%
  35. Headline Inflation Crosses The 12% Threshold
  36. Electricity Tariff Hike Could Awaken The "Sleeping Core Giant"
  37. Headline Inflation Increases By 12.13% YoY In January 2020; 0.15% Higher Than December 2019 Rate
  38. Inflation Will Cross the 12% Threshold; Pace of Increase to Slow Significantly
  39. Headline Inflation Creeps Up To 11.98% In December 2019
  40. Headline Inflation Increases By 11.98% YoY In December 2019; 0.13% Higher Than November 2019 Rate
  41. Headline Inflation Projected to Increase by 0.25% to 12.10% in December 2019
  42. Inflationary Pressure, Impacting Wallets
  43. Why is Inflation increasing?
  44. The Nigerian Economy And Prospects in 2020
  45. Inflation - What Goes Up Will Go Up Again
  46. Headline Inflation Increases By 11.85% YoY In November 2019; 0.24% Higher Than October 2019 Rate
  47. Inflation, Rolling With The Punches
  48. Headline Inflation Up Again, Puts The MPC On The Spot
  49. Headline Inflation Increases By 11.61% YoY In October 2019; 0.36% Higher Than September 2019 Rate
  50. Inflation Rate To Tick Up By 0.08% In October 2019
  51. Inflation Succumbs to Border Closure and Money Supply Growth - Spikes to 11.24%
  52. Headline Inflation Increases By 11.24% YoY In September 2019; 0.22% Higher Than August 2019 Rate
  53. Unlocking Liquidity in Nigeria - Ayo Teriba
  54. Foreign Direct Investment To Africa Remained Steady In 2018
  55. Inflation Set to Buck its Declining Trend

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.
Related News