09, 2021 09:07 AM / by FBNQuest Research/ Header Image
The latest inflation report (February) released by the National Bureau of Statistics (NBS) shows the eighteenth successive uptick in the y/y headline rate. Over the past six months, the highest m/m increases in the headline measure were registered in February '21 (87bps), December '20 (87bps) and January '21 (71bps). Food inflation remains the major driver behind the steady acceleration.
In addition to supply-side constraints triggered by the ongoing pandemic, the worsening insecurity in the country, particularly in food-producing areas, is limiting expected outcomes and further fuelling food inflation.
Based on February's inflation report, the highest increases were recorded in fish, meat, oils and fats, tubers, bread, cereals, potatoes, fruits and vegetables. The prices of poultry products in Nigeria are at their highest levels. A kilogramme of chicken that was previously sold at NGN800 is now sold at c.NGN2000, while the price of a crate of egg has doubled to NGN1500.
The latest NBS report tells us that the transport segment, which accounts for 6.5% of the basket, posted price increases of 1.3% m/m in February (compared with 1.2% the previous month) and 14.1% y/y, compared with 13.6% in January.
A separate report from the NBS reveals that the average fare paid by commuters for bus journeys within cities increased by 2.6% m/m and 78.1% y/y in February compared with 6.2% m/m and 78.5% y/y the previous month. Zamfara, Bauchi and Ekiti states recorded the highest increases.
The important drivers behind the increase in core inflation include the hike in the price of Premium Motor Spirit (PMS) and the upward adjustment in electricity tariff among others. The latest PMS Price Watch report shows that the average price paid by consumers increased by 14.3% y/y to NGN166.2 per litre in February '21. States with the highest average price of PMS were Abia (NGN180 per litre), Kogi (NGN175.8 per litre) and Kebbi (NGN173.1 per litre).
In February, the price rises recorded in the health segment were 1.3% m/m and 15.2% y/y. Pharmaceuticals and medical services continue to feature as leading drivers of core inflation.
Recreational activities have picked up, but with limitations. For example, cinemas are operating but with strict social distancing guidelines. In February, increases of 1.0% m/m and 11.4% y/y were recorded for the recreation and culture segment within the inflation basket.
At the last monetary policy committee (MPC), the committee retained all parameters and reiterated its stance that inflationary pressure is mainly due to legacy structural factors across the economy and not largely associated with monetary factors.
The CBN's in-house estimates suggest that inflationary pressure is projected to moderate in the short-to-medium term, given the potential rebound in output growth, bolstered by the resumption of economic activities. However, the underlying risks of the efficacy of the COVID-19 vaccines against known and newly emerging strains of the virus, the uncertainty as to whether the vaccines could help achieve herd immunity or not and unequal access to the vaccines are some of the headwinds that could undermine this forecast.