Tuesday, October 19, 2021 / 3.50PM / AbdulQudus Isiaka,Proshare Research/Header Image Credit: NBS
Data released by the National Bureau of Statistics last Friday showed that Nigeria's Inflation rate sustained a downward trend in September, after falling for the sixth consecutive month as CPI rose by 16.63% Y-o-Y. Despite the fall in inflation, the life of the average Nigerian is far from being a bowl of cherries, prices are still very high and the cost of living in many cities on skates.
September's inflation figure represents a 37-basis point decline in inflation rate compared to the 17.01% recorded in the month of August. Although, food inflation moderated year-on-year by 0.46 percentage points from 20.3% in August to settle at 19.57% in September, food inflation rose on a month-on month basis by 1.26% the highest since February 2021. Meanwhile, core inflation last month increased by 33 basis points from 13.41% in August 2021 to 13.74%. At the level of sub-nationals, Kogi state once again recorded the highest annual inflation rate as its CPI rose by 20.82%, which is lower than the 23.4% inflation rate recorded by the north-central state last month when it also ranked highest in terms of inflation amongst the sub nationals.
Headline Inflation: A lighter Headload for the average Nigerian?
Headline inflation in September came in at 16.63% indicative of the fact that the Consumer Price Index increased by 16.63% in September 2021 in comparison with September 2020. This is lower than 17.01%- the annual rate at which the general prices rose in August 2021 (see Chart 1).
Chart 1: Nigeria's Headline Inflation Rate Sep 2020 - Sep 2021 (%)
Source: NBS, Proshare Research
On a month-on-month basis the general price level in the month of September rose by 1.1%- the highest since June this year. This suggests that prices in the month of September were on average 1.1% higher than they were in August. The month-on-month inflation rate in August was 1.0%. From the new data, the twelve-month inflation average as of September was 16.8%, down 20 basis points from 16.6% in August.
The prices Nigerians pay for goods and services apart from farm products rose by 13.74% year-on-year in September, this implies that prices of items in the core subindex were 13.74% higher in the month of September than the were in the corresponding period of 2020. The recent figure indicates that core inflation which moderated for the first time in six months in August returned to its upward trend- a disturbing trend and indication of increase in inflation in the long term (see Chart 2).
Chart 2: Nigeria's Core Inflation Rate Sept 2020 - Sept 2021 (%)
Meanwhie, on a month-on-month basis, prices on the core sub-index rose by 1.24% - a much higher rate than the 0.77% rate at which prices of non-farm items rose in August. The twelve-month average of core inflation had risen from 12.29% as of the end of August to 12.55% at the end of September. The items that saw the highest increases in the core sub-index include: hospital services, shoes and other footwear, catering services and household and textiles
The food sub-index saw a year-on-year increase of 19.57%, suggesting that the price paid by Nigerians for food in September is on average 19.57% higher than the price paid in the corresponding period of last year. The food CPI data for the month of September also shows that food prices rose by 1.26% in the September when compared to the food prices in the month of August 2021. (see Chart 3).
Chart 3: Nigeria's Food Inflation Rate Sept 2020-Sept 2021(%)
Source: NBS, Proshare Research
As of the end of September, the twelve-month average of food inflation increased from 20.50% in August to 20.71%. The specific food items that accounted the most for the rise in the food sub-index are oils and fats, Milk, Cheese and Eggs, Bread and Cereals and Potatoes, Yam and other Tuber
A closer look at the September inflation data, reveals that urban inflation rose by 17.19% year-on-year, suggesting that prices in the urban centres have risen, in the period under review, more than they have risen in the country as a whole (16.63%). In August, urban CPI rose by 17.59% when the headline inflation for the entire country came in at 17.01%. Meanwhile, the month-on-month data shows that prices of commodities in urban centres rose in the last one month by 1.21% implying that commodities were on average 1.21% more expensive in urban areas, in September compared to August 2021. Rural Inflation settled at 16.08%, indicating that prices of commodities in rural areas were 16.08% more expensive in September 2021 relative to the corresponding period of the preceding year. Meanwhile in rural areas, food and non-food items were on average 1.1% more expensive in September than they were in August 2021.
Last month, Kogi state once again recorded a swift increase in its CPI, in the bespoke basket of commodities used to measure inflation in Kogi state, there was a 20.82% increase in the month of September when compared to the CPI in September Last year. Similarly, Gombe state recorded a 19.09% rise in its CPI, making the north-eastern state the second-highest of all the 36 states behind Kogi, but ahead of Bauch state where the CPI increased year-on-year by 18.99%. Kwara, Edo and Yobe states recorded the least year-on-year increases in price level amongst the 36 states (see Chart 4).
Chart 4: Headline CPI for States
Source: NBS, Proshare Research
End Note: Swotting the Inflation Fly
At 16.63%, Nigeria's inflation is still considered to be high, given the implications of double digit inflation on the purchasing power of the average Nigerian as well as its capacity to discourage investment, the monetary and fiscal authorities need to address the root causes of inflation. Local economists have identified money supply growth, low domestic production and high exchange rate as the major drivers of Inflation in Nigeria. It is, therefore, necessary for the monetary and fiscal authorities to work together to address the poor productivity that accounts for the structural/supply-side inflation. The supply-side constraints are numerous ranging from insecurity, complex cargo clearing logistics, and multiple taxations. In its nature such inflationary pressures in such a clime are compounded by counter-cyclical spending hence rather than throw money at the Nigerian inflation problem, it would help more if the supply side constraints are addressed, and money supply growth is managed while the supply of fx is increased to reduce the cost at which equipment and other production inputs are procured from abroad.