Inflation Spikes Despite Harvest and Land Border Re-opening

Proshare

Monday, January 18, 2021 / 08:35 AM / FDC Ltd / Header Image Credit: NBS


Proshare Nigeria Pvt. Ltd.


Nigeria's headline inflation for December 2020 came in at 15.75%, much higher than analyst expectations and 0.86% above the November figure (14.89%). It is almost 7% above the upper limit of the CBN's inflation target range (6-9%), bringing the average inflation in 2020 to 13.21%, up from 11.39% in 2019.

 

A deep dive into the report shows that core inflation (inflation less seasonalities) increased sharply by 0.32% to 11.37% compared to a reduction of 0.09% in November. This indicates that the spike in headline inflation is not driven by seasonal factors alone. It validates the notion that the continued rise in inflation is due to the combined effects of exchange rate pass through, higher logistics costs (PMS), electricity tariff hike among others. High powered money and the funding of the FG overdraft estimated at N11trn are also inflation stoking factors.

 

Meanwhile, the relatively stable month-on-month inflation rate (1.6% - annualized at 21.11%) suggests that the spike in the annual price level was partly driven by base year effects. Output levels in December 2020 were much lower compared to December 2019 due to the COVID disruptive effects.

 

Proshare Nigeria Pvt. Ltd.

 

The unrelenting rise in inflation will be a major issue at the MPC meeting later this month. The CBN cannot be oblivious to a rate of inflation which is now almost 7% above the upper limit of its inflation range (6-9%).

 

It therefore may consider tightening before the meeting or symbolically increasing the rates of its special bills, currently at 0.5%p.a. The naira had wobbled throughout 2020, partly as a result of the wide gap between the rate of inflation (15.75%) and basement level rate of 0.5%p.a on 91-day T/Bills. The FGN has also announced plans to securitize its overdraft at the CBN, roughly estimated at N11trn (30.14% of money supply). This means more securities available for institutional investors and a possible increase in interest rates.

 

Inflation Breakdown

 

Core inflation up 0.32% to 11.37% on higher logistics costs

In December, core inflation (inflation less seasonalities) increased sharply by 0.32% to 11.37% on an annual basis and by 0.39% to 1.1% on a monthly basis. This suggests that the transmission effect of the petroleum price increase and electricity tariff hike is gradually reflecting in commodity prices. The highest increases were recorded in prices of passenger transport by air and road (higher logistics costs and a pickup in travel demand), pharmaceutical products, medical and artisan services like vehicle maintenance and repairs as well as hair dressing salon costs.

 

Food inflation climbs to a 37-month high as forex scarcity mutes the impact of border reopening

Analysts had expected the reopening of the land borders in December to boost output levels and gradually ease supply constraints. However, food inflation has remained stubbornly high, crossing the 19% threshold to a 37-month high of 19.56% in December 2020. On a month-month basis, the food index inched up 0.01% to 2.05%. The marginal increase in the monthly food sub-index reveals the gradual impact of the harvest (tomatoes and onions).

 

Meanwhile, the spike in the annual food component largely explains the base year effects on commodity prices i.e. output levels in December 2020 were low compared to December 2019, caused by the COVID-19 disruptive effects. Also, the impact of border re-opening was limited by forex illiquidity. The commodities that recorded the highest price increases were bread and cereals, potatoes, yam and other tubers, meat, fruits, vegetable, fish and oils and fats.

 

Rural and Urban

Both the rural and urban sub-indices recorded sharp increases on an annual basis. Urban inflation increased by 0.86% to 16.33% while the rural sub-index rose by 0.87% to 15.20%. On a monthly basis, the urban subindex was flat at 1.65% while the rural sub-index inched up by 0.02% to 1.58%.

 

State-by-State Analysis

Abia state recorded the lowest inflation rate (13.30%), followed by Kwara (13.91%) and Lagos (14.05%). However, the states with the highest inflation rates were mainly in the North - Bauchi (19.85%), kogi (18.40%) and Edo (18.15%).

 

Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd. 


SSA Regional Trend

With the exception of South Africa, all the Sub Saharan African (SSA) countries under our review have released their inflation numbers for December 2020. Uganda was the only country under our review that recorded a decline, while others recorded an increase. The rise in inflation was largely as a result of disruptions to agricultural activities and currency depreciation due to the twin shock of COVID-19 and lower oil prices. Heightened inflationary pressures could force a reversal in monetary policy stance in these countries.

 

Proshare Nigeria Pvt. Ltd.

 

Outlook

We expect a further increase in headline inflation in January 2021 but the pace of increase could slow due to the re-opening of land borders and increased output due to harvest.

 

The MPC is expected to meet on January 25/26. We expect the stubbornly high inflation rate to be one of the major considerations at the meeting. The CBN cannot be oblivious to a rate of inflation which is now almost 7% above the upper limit of its inflation target range (6-9%). It therefore may consider tightening before the meeting or symbolically increasing the rates of its special bills, which is currently at 0.5%p.a.

 

Credits

* This post was first published on FDC Economic Bulletin on Friday, January 15, 2021.


Proshare Nigeria Pvt. Ltd.


Related News

  1. Nigeria's Misery Index Rises as Inflation Reaches 15.75%
  2. Headline Inflation Increases by 15.75% YoY In December 2020, 0.86% Higher Than November 2020 Rate
  3. Headline Inflation to Continue its Runaway Trend in December 2020
  4. Border Reopened After Inflation Spiked
  5. Headline Inflation Increases By 14.89% YoY In November 2020, 0.66% Higher Than October 2020 Rate
  6. Nigeria's Inflation-Galloping Towards 15%
  7. Headline Inflation Climbed Higher in October, Up by 14.23%
  8. October Inflation: A Blip or Trend?
  9. Inflation: Higher Energy Costs Could Compound Spiralling Food Prices
  10. Nigeria's Inflation Maintains Upward Trend Amidst Structural Rigidities
  11. Higher Energy and Food Prices Pushed Headline CPI to 14.23% YoY
  12. Headline Inflation Increases By 14.23% YoY In October 2020, 0.52% Higher Than September 2020 Rate
  13. Is Nigeria Headed for an Era of Hyperinflation?
  14. Nigeria's Inflation Rises to 13.71% as Concerns Mounts Up
  15. Headline Inflation Ticked up by 49 bps to 13.71% in September - PFI Capital
  16. Another Rise in Inflation Driven by Food Prices
  17. Persisting Food Pressure Pushes Headline Inflation to 13.71% YoY
  18. Inflationary Pressure Still Squeezing Pockets
  19. Headline Inflation Increases By 13.71% YoY In September 2020, 0.49% Higher Than August 2020 Rate
  20. Headline Inflation to Remain Stubbornly High in Q4'20
  21. Headline Inflation Climbed to a 29-month High of 13.22% in August 2020
  22. Headline Inflation Increases By 13.22% YoY In August 2020; 0.40% Higher Than July 2020 Rate
  23. Headline Inflation to Creep Up to 12.95%
  24. Food Price Pressure Stokes Inflation to 28-month High in July - PFI Capital
  25. Headline Rate Will Remain Unchanged at 12.8% YoY in August 2020 - FBNQuest
  26. Headline Inflation Increases By 12.82% YoY In July 2020; 0.26% Higher Than June 2020 Rate
  27. Headline Inflation Fast Approaching the 13.0% Threshold Due to Cost Push Factors
  28. Inflationary Pressure Likely to Decelerate in July - PFI Capital Limited
  29. Headline Inflation Crosses the 12.5% Threshold in June 2020
  30. Inflation Spikes Amid Rising Coronavirus Cases; Understanding The Numbers
  31. Headline Inflation Increases By 12.56% YoY In June 2020; 0.16% Higher Than May 2020 Rate
  32. Headline Inflation to Increase to 12.55%, Monthly Inflation to Dip in June 2020
  33. Headline Inflation Inched Up By 0.06% As Monthly Inflation Spikes
  34. Headline Inflation Increases By 12.40% YoY In May 2020; 0.06% Higher Than April 2020 Rate
  35. Annual Inflation to Increase Again Towards 12.50% as Monthly Inflation Jumps to 15.73%
  36. Inflationary Pressure, Weakening Pockets
  37. Headline Inflation Increases By 12.34% YoY In April 2020; 0.08% Higher Than March 2020 Rate
  38. April 2020 Headline Inflation Will Cross 13.0% - FDC
  39. Headline Inflation Increases By 12.26% YoY In March 2020; 0.06% Higher Than February 2020 Rate
  40. Nigeria's Economy Under Strain As Inflation Rate Rises
  41. Headline Inflation Increases By 12.20% YoY In February 2020; 0.07% Higher Than January 2020 Rate
  42. Headline Inflation Rate to Increase to 12.37% in February 2020 from 12.13% Reported in January 2020
  43. Inflation to Spike Again to 12.30%
  44. Headline Inflation Crosses The 12% Threshold
  45. Electricity Tariff Hike Could Awaken The "Sleeping Core Giant"
  46. Headline Inflation Increases By 12.13% YoY In January 2020; 0.15% Higher Than December 2019 Rate
  47. Inflation Will Cross the 12% Threshold; Pace of Increase to Slow Significantly
  48. Headline Inflation Creeps Up To 11.98% In December 2019
  49. Headline Inflation Increases By 11.98% YoY In December 2019; 0.13% Higher Than November 2019 Rate
  50. Headline Inflation Projected to Increase by 0.25% to 12.10% in December 2019
  51. Inflationary Pressure, Impacting Wallets
  52. Why is Inflation increasing?
  53. The Nigerian Economy And Prospects in 2020
  54. Inflation - What Goes Up Will Go Up Again
  55. Headline Inflation Increases By 11.85% YoY In November 2019; 0.24% Higher Than October 2019 Rate
  56. Inflation, Rolling With The Punches
  57. Headline Inflation Up Again, Puts The MPC On The Spot
  58. Headline Inflation Increases By 11.61% YoY In October 2019; 0.36% Higher Than September 2019 Rate
  59. Inflation Rate To Tick Up By 0.08% In October 2019
  60. Inflation Succumbs to Border Closure and Money Supply Growth - Spikes to 11.24%
  61. Headline Inflation Increases By 11.24% YoY In September 2019; 0.22% Higher Than August 2019 Rate
  62. Unlocking Liquidity in Nigeria - Ayo Teriba
  63. Foreign Direct Investment To Africa Remained Steady In 2018
  64. Inflation Set to Buck its Declining Trend

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.
READ MORE:
Related News
SCROLL TO TOP