Nigeria's Inflation Rises to 13.71% as Concerns Mounts Up


Monday, October 19, 2020, / 03:00 PM / by Proshare Research / Header Image Credit: NBS


Proshare Nigeria Pvt. Ltd.

As predicted by economic experts, Nigeria's inflation rate continued its upward trend increasing by +0.49% from 13.22% in August 2020 to 13.71% in September 2020 (see Chart 1).


Nigeria's upward trending inflation rate, according to analysts, poses a major challenge for the central bank of Nigeria (CBN). The consistent rise in inflation which was initially attributed to the temporary closure of the Nigerian border in August 2019 has been worsened by the COVID-19 pandemic.


Chart 1: Nigeria's Inflation Rate (%)

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research, NBS


Apart from the rise in the rate of inflation, what draws the attention of experts is the magnitude of the rate of increase which is very worrisome. The magnitude of the rise in the inflation rate rose by as much as +0.4% in August 2020 to +0.49% in September 2020. The magnitude of the increase has been on the rise since May 2020 and this rise is expected to continue till the end of the year (see Chart 2).



Chart 2: Magnitude of Increase in Nigeria's Inflation Rate (%)

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research, NBS


Food inflation rose to 16.66% in September 2020 from 16% in August 2020. The rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam, and other tubers, meat, fish, fruits, and oils & fats (see Chart 3).


Chart 3: Nigeria's Food Inflation Rate (%)

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research, NBS


In a chase with headline inflation, the magnitude of the rise in food inflation has been equally worrisome. Food inflation rose from +0.01% in May 2020 to +0.66% in September 2020, food inflation has risen at a faster pace. The persistence in security worries, the approaching end-of-the-year festivities, rising incidences of floods in parts of the country, and the continuous spread of the coronavirus has disrupted global supply chains, thereby posing challenges for food prices. Given these prevailing circumstances, it's been predicted that the food inflation rate will continue to rise (see Chart 4).


Chart 4: Magnitude of Increase in Nigeria's Food Inflation Rate (%)

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research, NBS

Nevertheless, core inflation stood at 10.58% in September 2020 an increase of +0.06%. Unlike headline inflation and food inflation that have increased at increasing rates, the country's core inflation rate has increased at a decreasing rate. The highest increases were recorded in the prices of passenger transport by air, medical services, hospital services, pharmaceutical products, passenger transport by road, motor cars, vehicle spare parts, maintenance and repair of personal transport equipment, repair of furniture, and paramedical services (see Chart 5).


Chart 5:  Nigeria's Core Inflation (%)

 Proshare Nigeria Pvt. Ltd.

Source: Proshare Research, NBS

 Proshare Nigeria Pvt. Ltd.

The prices of transport by road might not taper down anytime soon given the total deregulation of the oil sector. The burden of the increase in fuel price resulting from the deregulation of the oil sector would be transferred to the end consumer in the form of higher transportation costs. On the other hand, there might be a reduction in the prices of pharmaceutical products, passenger transport by road, motor cars, vehicle spare parts, maintenance and repair of personal transport equipment, repair of furniture, and paramedical services if the spread of the virus reduces significantly both domestically and globally.


A reduction in the local spread of the virus would reduce the pressure on the demand for pharmaceutical products, and paramedical services which supply has been constrained due to the disruption in their supply chains as India which is one of the largest exporters of pharmaceutical products have recorded a significant daily increase in the number of coronavirus cases.  Furthermore, a reduction in the global spread of the virus will mean a quick rebound in trading activities and a reduction in the cost of importing vehicle parts, and an increase in the availability of vehicle parts. While if the spread of the virus continues in countries specialized in automobile production the price increase will most likely continue (see Chart 6).



Chart 6: Magnitude of Change in Core Inflation (%)

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research, NBS

 Proshare Nigeria Pvt. Ltd.

Getting Past Food Inflation

A major driver of Nigeria's headline inflation has been the consistent rise in food inflation. The rise in food inflation has been partly attributed to Nigeria's poor seed yields, border closure, poor storages, insecurities, and flooding in some parts of the country. To prevent the further rise in food prices, these problems need to be addressed urgently. Furthermore, the use of best technology practices and a guarantee of security by security agencies would also bolster farmer's confidence to return to the farms.


Also, farmers can either adopt floodplain agriculture, spate irrigation, inundation canals, and depression agriculture to cope with the adverse effects of flooding. To ensure greater efficiency and productivity in agricultural outputs, yield mapping could also be adopted. Georeferenced data on crop yield and characteristics, such as moisture content could be adopted i.e. range sensors could be adopted for mapping crop yields.

 Proshare Nigeria Pvt. Ltd.

Risk of an Heightened Inflation

CBN noted that the rise in the inflation rate could be attributed to structural factors rather than a monetary phenomenon, hence, the reduction in its monetary policy rate by 100 basis points from 12.5% to 11.5%.  Although the policy intends to increase the flow of credit to the real sector of the economy, there are limits to the effectiveness of this policy. For example, improvement in manufacturing activities is hinged on adequate infrastructural facilities, availability of forex for importing raw materials, and the quick rebound from the adverse effect of COVID-19 on global trade, therefore, increased credit to the manufacturing sector without adequately addressing these core issues will further heighten inflation rate. Furthermore, an improvement in the agricultural output depends on the improvement in seed yields, proper technology to deal with flooding, security, etc. Therefore, if these triggers for food inflation and core inflation are not adequately addressed through fiscal policy, CBN's reduction in MPR to 11.5% might further exacerbate Nigeria's rising inflation rate.

 Proshare Nigeria Pvt. Ltd.

Going Forward

Nigeria's headline inflation would likely maintain its upward trajectory until the end of the year this is so because of the fast-approaching year-end festivities as well as the continuous spread of the virus which may disrupt global supply chains.


There are expectations that the rising inflation rate would be the focal point of discussion for the next monetary policy committee meeting of the CBN given the continuous reduction in the real purchasing power of the local currency.


Proshare Nigeria Pvt. Ltd.

Related News

1.      Inflationary Pressure Still Squeezing Pockets

2.     Headline Inflation Increases By 13.71% YoY In September 2020, 0.49% Higher Than August 2020 Rate

3.     Headline Inflation to Remain Stubbornly High in Q4'20

4.     Headline Inflation Climbed to a 29-month high of 13.22% in August 2020

5.     Headline Inflation Increases By 13.22% YoY In August 2020; 0.40% Higher Than July 2020 Rate

6.     Headline Inflation to Creep Up to 12.95%

7.     Food Price Pressure Stokes Inflation to 28-month High in July - PFI Capital

8.     Headline Rate Will Remain Unchanged at 12.8% YoY in August 2020 - FBNQuest

9.     Headline Inflation Increases By 12.82% YoY In July 2020; 0.26% Higher Than June 2020 Rate

10.  Headline Inflation Fast Approaching the 13.0% Threshold Due to Cost-Push Factors

11.   Inflationary Pressure Likely to Decelerate in July - PFI Capital Limited

12.  Headline Inflation Crosses the 12.5% Threshold in June 2020

13.  Inflation Spikes Amid Rising Coronavirus Cases; Understanding The Numbers

14.  Headline Inflation Increases By 12.56% YoY In June 2020; 0.16% Higher Than May 2020 Rate

15.  Headline Inflation to Increase to 12.55%, Monthly Inflation to Dip in June 2020

16.  Headline Inflation Inched Up By 0.06% As Monthly Inflation Spikes

17.  Headline Inflation Increases By 12.40% YoY In May 2020; 0.06% Higher Than April 2020 Rate

18.  Annual Inflation to Increase Again Towards 12.50% as Monthly Inflation Jumps to 15.73%

19.  Inflationary Pressure, Weakening Pockets

20. Headline Inflation Increases By 12.34% YoY In April 2020; 0.08% Higher Than March 2020 Rate

21.  April 2020 Headline Inflation Will Cross 13.0% - FDC

22. Headline Inflation Increases By 12.26% YoY In March 2020; 0.06% Higher Than February 2020 Rate

23. Nigeria's Economy Under Strain As Inflation Rate Rises

24. Headline Inflation Increases By 12.20% YoY In February 2020; 0.07% Higher Than January 2020 Rate

25. Headline Inflation Rate to Increase to 12.37% in February 2020 from 12.13% Reported in January 2020

26. Inflation to Spike Again to 12.30%

27. Headline Inflation Crosses The 12% Threshold

28. Electricity Tariff Hike Could Awaken The "Sleeping Core Giant"

29. Headline Inflation Increases By 12.13% YoY In January 2020; 0.15% Higher Than December 2019 Rate

30. Inflation Will Cross the 12% Threshold; Pace of Increase to Slow Significantly

31.  Headline Inflation Creeps Up To 11.98% In December 2019

32. Headline Inflation Increases By 11.98% YoY In December 2019; 0.13% Higher Than November 2019 Rate

33. Headline Inflation Projected to Increase by 0.25% to 12.10% in December 2019

34. Inflationary Pressure, Impacting Wallets

35. Why is Inflation increasing?

36. The Nigerian Economy And Prospects in 2020

37. Inflation - What Goes Up Will Go Up Again

38. Headline Inflation Increases By 11.85% YoY In November 2019; 0.24% Higher Than October 2019 Rate

39. Inflation, Rolling With The Punches

40. Headline Inflation Up Again, Puts The MPC On The Spot

41.  Headline Inflation Increases By 11.61% YoY In October 2019; 0.36% Higher Than September 2019 Rate

42. Inflation Rate To Tick Up By 0.08% In October 2019

43. Inflation Succumbs to Border Closure and Money Supply Growth - Spikes to 11.24%

44. Headline Inflation Increases By 11.24% YoY In September 2019; 0.22% Higher Than August 2019 Rate

45. Unlocking Liquidity in Nigeria - Ayo Teriba

46. Foreign Direct Investment To Africa Remained Steady In 2018

47. Inflation Set to Buck its Declining Trend 


 Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd. 

Related News