Households hang by a thread as Inflation Rises by 17.75% in June 2021

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Tuesday, July 20, 2021 / 9.30AM / AbdulQudus Isiaka, Proshare Research/Header Image Credit: NBS

 

Data released by the National Bureau of Statistics (NBS) last week showed that Nigeria's headline line inflation rate dropped to 17.75% in the month of June 2021 representing the third straight fall in monthly inflation numbers. The recent inflation number defied analysts forecasts as they had earlier predicted a rise in the general price level of around 18.1% for the month of June 2021.

 

Analysts noted that May 2021 inflation figures had also come as a surprise as they expected that prevailing domestic insecurity and exchange rate pressures would result in the average annual price level taking a knock inflation as prices trended upwards. However, the inflation rate for May 2021 fell by 19 basis points from 18.12% in April to 17.93% in May.

 

Meanwhile, Nigerians who have over time witnessed a steady decline in their purchasing power do not seem to understand why every new inflation data seems to suggest that things are getting better while their pockets feel leaner. It is perhaps important to understand that while the CPI measures the general price level of goods and services in the economy, the Inflation rate is a marginal concept that basically estimates the rate at which the CPI itself increases.

 

 In other words, when the general price level rises at a slower rate than as observed in the previous month Inflation would be said to have moderated. Generally, a little amount of inflation is necessary for growth but inflation, when it rages, has a devastating effect on lenders, savers, and consumers.

 


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Getting down to brass tacks

 

Headline Inflation; A Downward Slide but Upward Headache

A further breakdown of the CPI data last week shows that while headline inflation may have fallen from 17.93% Y-o-Y in May 2021 to 17.75% in June 2021, M-o-M inflation rose from 1.01% in May 2021 to 1.06% in June 2021. Meanwhile, the average inflation for the 12 months ending June 2021 was 15.93% whereas as of last month the average inflation for the 12 months ending May 2021 was 15.5% (see Chart 1).

 

The implication of these figures are as follows:

  • General prices are 17.75% more expensive in June 2021 than they were in June 2020
  • Prices increased by 0.05 percentage points more in June 2021 than they increased in May 2021
  • Prices rose over the 12-month period ending in June 2021 by an average of 15.93%



Chart 1: Nigeria's Headline Inflation Rate (%)

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Source: NBS, Proshare Research


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Food Inflation; Coping with Belly Bites

An examination of the Food Index rose by 21.83% Y-o-Y in the month of June in comparison to the 22.28% at which the index rose in May 2021. However, we find that when compared to the month of May when food prices rose by 1.05% Month on Month, food prices rose by 1.11% M-o-M in June. The twelve-month average of food inflation as of June 2021 was 19.72% which is higher when compared to the 19.18% inflation average for the twelve months ending May 2021 (see Chart 2).


Chart 2: Nigeria's Food Inflation Rate (%)

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Source: NBS, Proshare Research

 

The implication of these figures are as follows:

  • Food prices are 22.28% more expensive in June 2021 than they were in June 2020
  • Food Prices increased by 0.06 percentage points more in June 2021 than they rose in May 2021
  • Food prices rose in the 12-month period ending in June 2021 by an average of 19.72%

 

The Y-o-Y and M-o-M increases in the food index are attributed to a rise in the prices of Tubers, Milk, Bread and cereals, Cheese and Eggs, Vegetables, Soft drinks, Oils and Fats, Meat and Fish.



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Core Inflation

Data relating to the non-food sub-index show that core inflation slumped from 13.15% in May 2021 to 13.09% in June 2021. On a month-on-month basis, core inflation rose from 0.43% in May 2021 to 0.83% in June 2021. The average inflation for the 12 months ending June 2021 was 11.75% which happens to be higher than 11.5% - the 12-month average ending May 2021 (see Chart 3 below).


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

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Source: NBS, Proshare Research

 

 

The implication of these figures are as follows:

  • Prices of non-food items are 17.75% more expensive in June 2021 than they were in      June 2020
  • Prices increased 0.05 percentage points more in June 2021 than in May 2021
  • Prices rose in the 12 months ending in June 2021 by an average of 15.93%

 

The swiftest increases in the core sub-index were those of  Fuels and lubricants, vehicle spare parts, Shoes, and other footwear, Pharmaceutical products, Medical services, Hairdressing salons, and personal grooming establishments, Cleaning, repair, and hire of clothing, Clothing materials, other articles of clothing and clothing accessories,

 

Sub-Nationals

 

In June 2021 in comparison to June 2020, Headline Consumer Price Index grew highest in Kogi by 23.78%, in Bauchi 20.67%, and in Jigawa 19.81%. However, CPI grew slowest year-on-year in Cross River by 15.53%, in Delta by 15.18%, and in Abuja by 15.15%. Meanwhile, in the same period, the food sub-index grew fastest on a year on year basis in Kogi by 30.34%, in Enugu by 25.18% and in Kwara by 24.78%, while food prices grew slowest in Bauchi by 18.97%, in Rivers by 18.92% and in Abuja by 17.09%(see Chart 4&5).


Chart 4: Headline CPI for States

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Source: NBS, Proshare Research

 

 

Chart 5: Food CPI for States

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Source: NBS, Proshare Research

 

Shooting a Grisly Bear

 

Domestic inflation at 17.75% remains a major consumer burden. The rate at which retail prices have continued to rise has been attributed to higher producer costs as well as stronger demand pressures. From the manufacturers' end, raw materials have particularly been appreciating and just as increasing overhead costs on diesel and logistics have not helped matters, the continuous devaluation of the naira against the dollar has also contributed a great deal to the impoverishment of the Nigerian populace.

 

 

 

What to Do

Analysts suggest that with inflation still a major problem the Nigerian government may need to embrace tighter fiscal discipline by ensuring that fiscal deficits are recorded only in recessions while surpluses earned in more prosperous times are better managed.


The government also needs to address the infrastructural deficits by encouraging investors through business-friendly regulations and policies. At the same time, the country needs to diversify its foreign exchange earnings and encourage remittances to meet its foreign exchange demands, this should help to reduce the cost of foreign exchange.

 

Grisly bears look impressive and cuddly but, on the attack, they could be deadly, analyst's consensus is that Nigeria's economic grisly of inflation needs to be put down and quickly too.

 

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Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

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