Thursday December 23, 2021 / 09:40
AM / by FBNQuest Research / Header Image Credit: Pexels
Today, we examine some of the drivers for the November inflation figures, following our initial take earlier in the month. We see from the National Bureau of Statistics (NBS)'s latest inflation report, that inflation slowed down for the eighth consecutive month in November to 15.40% y/y from 15.99% in the previous month. This was buoyed by positive base effects and a decline in food price inflation. The headline rate has remained at double-digit levels since February '16 and despite a recent respite in rising inflation, inflationary pressures remain.
Food price inflation, the primary driver of the high headline rate, has slowed by a monthly average of 72bps over the last eight months. It stood at 17.21% y/y last month compared with 18.34% in October.
In the selected food price watch report for November, a separate report by the NBS, we see that 42 of 43 food items surveyed, recorded y/y price increases. Rising food prices reflect the deficiencies of Nigeria's agriculture sector. Insecurity continues to be the sector's biggest headwind. Other challenges include post-harvest losses, poor storage culture, very limited farm mechanisation, and logistic challenges. Limited fx availability for food importation is yet another reason behind relatively higher food prices.
The Premium Motor Spirit (PMS) price watch shows that the average price paid by consumers for PMS increased by 0.2% y/y and by 1.2% m/m to NGN167.60 per litre in November from NGN165.60 per litre in the previous month. The government has disclosed that in line provisions in the Petroleum Industry Act (PIA), it plans to deregulate all petroleum products from H2 '22. This will lead to significantly higher PMS prices, around a range of NGN320 - NGN340 per litre, presently, according to the Group Managing Director of Nigerian National Petroleum Company Limited (NNPC). This announcement has been met with resistance by the Nigeria Labour Congress (NLC).
The transportation segment, which accounts for 6.5% of the basket, again posted a price increase of 15.0% y/y and 1.2% m/m last month, unchanged from the rate of increase recorded in October. The NBS's transport fare watch shows that the increase in average fare paid by commuters for bus journeys within cities rose by 1.5% m/m and 33.7% y/y on average in November.
The NBS report on Liquefied Petroleum Gas (LPG) prices also reveals that the average cost of refilling a 12.5kg cylinder rose by 10.1% m/m and by 79% y/y to an average of NGN7,308 in November '21, from NGN6,638 in August. The persistent rise in LPG prices is attributed to supply shortages caused by the reliance on importation, which is worsened by fx volatility.
The NBS's Automotive Gas Oil (diesel) price watch and its National Household Kerosene price watch show that prices of diesel and kerosene recorded y/y increases of 24.2% and 24.8% respectively.
At the last MPC meeting, the committee voted by unanimous decision to hold all policy parameters constant. It noted that despite the progressive decline in inflation, the headline rate remained above the CBN's implicit tolerance corridor of 6 - 9% and above its benchmark policy rate of 11.5%. The committee expects inflation to continue its downward trajectory as the harvest season sets in and as the government makes a concerted effort to improve national security which should ease food supply bottlenecks.