Inflationary Pressures: Consumers Not Yet at Ease


Friday, September 03, 2021 / 11:50 AM / by FBNQuest Research / Header Image Credit: Bloomberg


We continue our commentary on inflation. The latest inflation report released by the National Bureau of Statistics (NBS) shows a fourth consecutive monthly decline in headline inflation to 17.38% y/y, driven by decelerating food inflation and positive base effects. Despite the moderation in headline inflation in the past months, consumers' wallets remain stretched.


Food price inflation recorded a decline of 80bps to 21.03% in July. It remains the primary driver of the relatively high headline rate recorded. On a m/m basis, the food sub-index rose by 0.86% in July '21, compared with an increase of 1.11% in the previous month.

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The National Bureau of Statistics (NBS)'s selected food price watch report for July showed y/y increases in the prices of 41 of the 42 food items surveyed. Despite the CBN's significant investment in agriculture, the sector continues to underperform. This is largely due to low food production and supply chain bottlenecks: direct consequences of the nation's persistent security crisis, especially in major food producing regions of the country.


Based on the NBS' selected food price watch report, the average price of a tin of milk increased by 2.5% m/m and 12.7% y/y in July.


The latest NBS inflation report shows that the transport segment, which accounts for 6.5% of the basket, posted price increases of 1.1% m/m and 15.1% y/y in July, compared with 1.1% m/m and 15.0% y/y recorded in June. According to the NBS's transport fare watch, the average fare paid by commuters for bus journeys within cities decreased by -0.01% m/m and increased by 65.8% y/y in July compared with 2.8% m/m and 78.4% y/y the previous month. Bauchi, Taraba and Cross River states recorded the highest increases.

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A separate report from the NBS shows that the average price paid by consumers for Premium Motor Spirit (PMS) increased by 0.18% m/m, and by 15.5% y/y to NGN165.9 in July from NGN143.6 in July '20. With the recent passage of the petroleum industry bill (PIB), we see the possibility of an end to petrol subsidies and a resultant increase in pump prices.


The price increases recorded in the health segment were 1.1% m/m and 15.7% y/y in July. Pharmaceuticals and medical services have repeatedly featured as leading drivers of core inflation. We attribute this to the pandemic and its health implications, and the fact that most pharmaceutical products are imported (and so depreciating exchange rate directly impacts this sub-index).


The NBS report on Liquefied Petroleum Gas prices reveals that the average cost of refilling a 12.5kg cylinder increased by 3.1% m/m and by 7.2% y/y to NGN4,422.3 in July '21 from NGN4,289.1 in June. The persistent increase in the price of cooking gas has driven consumers to adopt lower-cost alternatives like wood.


At its last meeting in July, the MPC noted the continued moderation in headline inflation. While the headline rate remains above the ceiling of the CBN's 6-9% corridor, the committee expressed optimism that the current interventions by the Bank in various sectors of the economy will further depress inflationary pressure as output growth improves and the negative output gap closes.

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