Unrelenting Inflationary Pressures


Tuesday, January 25, 2022 / 09:48 AM / by FBNQuest Research / Header Image Credit:  Ecographics


Following our initial take on December's inflation numbers, today we delve deeper into some of the drivers behind the headline rate. Inflation accelerated by 23bps last month to close the year at 15.63%. This represents its first uptick following eight successive months of decline and is supported by a 16bp increase in food inflation. We attribute the increase in headline rate to price upticks associated with the year-end holiday season and note that the headline number remains far above the CBN's reference range of between 6.0% and 9.0% y/y, primarily due to the supply-side constraints.


Food inflation stood at 17.37% in December '21, driven by increases in the prices of bread and cereals, meat, fish, potatoes, yam and other tubers, other food products, soft drinks and fruits.


The selected food price watch report for December, a separate report by the NBS, shows y/y price increases in 42 of the 43 food items surveyed. Food production in Nigeria remains constrained by the persistent insecurity in major food-producing states. Other supply-side constraints are the poor infrastructure, post-harvest losses and poor storage culture, very limited farm mechanisation and logistic challenges. Limited fx availability for food importation also pushed imported food inflation up by 6bps to 17.34% in December '21.


In its development update for Nigeria last year, the World Bank noted that even if domestic food production improves, and supply and distribution constraints are eased, a combination of fx shortage, expansionary monetary policy and the monetary funding of the fiscal deficit will continue to generate inflationary pressures.


The NBS's Premium Motor Spirit (PMS) price watch shows that the average price paid by consumers for PMS increased by 0.04% y/y and decreased by -1.1% m/m to NGN165.77 per litre in December from NGN167.60 per litre in the previous month. Ebonyi, Kogi and Jigawa recorded the highest average prices in the month, while Kano, Ogun and Zamfara posted the lowest average PMS prices.


The clothing and footwear segment, which accounts for 7.7% of the basket posted y/y and m/m price increases of 15.1% and 1.4% respectively. This segment's dependence on fx, given the weakness of Nigeria's textile industry, has supported its persistent inflation for 27 consecutive months. 


We see from the NBS report on Liquefied Petroleum Gas (LPG) prices that the average cost of refilling a 12.5kg cylinder increased by 76% y/y and by 0.3% m/m to an average of NGN7,332 in December '21, from NGN7,308 in November. The Board of Directors of Nigeria LNG Limited (NLNG) this month approved the supply of 100% of the company's LPG production (propane and butane) to the Nigerian market. An increase in the supply of LPG would temper soaring prices of cooking gas nationwide.


The NBS's Automotive Gas Oil (diesel) price watch shows that diesel prices recorded a 29% y/y increase last month. Its National Household Kerosene price watch also shows a 32.7% rise in price of kerosene to NGN468 per litre.

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