| Nigeria Economy |    1033 VIEWS  |
| Nigeria Economy | |
| 1033 VIEWS | |
 | |
| PROSHARE | |
| PROSHARE | |
Thursday, June 04, 2020 / 09:26 AM / By FBNQuest
Research / Header Image Credit: The East African
Today
we turn our attention to inflation. The headline rate has recorded steady
upticks since September 2019. The highest increase was seen in October with
36bps while February, March and April 2020 registered increases of 7bps, 6bps
and 8bps respectively. Food inflation remains the primary driver of
acceleration for the headline rate. The prices of specific food items rose on
the back of the country's land border closure in Q3 2019. Additionally, given
the restrictions to movements (including disruptions to the transportation of
food items from farms to markets) due to the current Covid-19 pandemic, there
have been further food supply shocks.
The general softness in household demand due to the current economic
downturn would generally result in reduced prices of specific items (including
food items). However, due to difficulties with securing many agricultural
products as well as food items, cost-push inflation has kicked in. The
transmission effect of the steady upticks in food price inflation has been
quick across markets in the country.
The transport segment, which accounts for 6.5% of the total inflation
basket, showed price increases of 1.0% m/m in April, compared with 0.8% the
previous month, and 9.8% y/y, compared with 9.5%.
A separate report from the National Bureau of Statistics shows that the
average fare paid by commuters for bus journeys within cities increased by 8.2%
m/m and 22.4% y/y in April. Zamfara, Abuja and Kebbi states recorded the
highest increases.
We expected the decline in crude oil prices to result in the reduced
cost of imported petroleum products, and by extension lower transportation
fares. However, the social distancing instructions (i.e. reduced number of
passengers per vehicle) on the back of the pandemic has led to increases in
mass transportation costs.
The segment categorised as housing, water, electricity, and gas and
other fuels, the largest component of the core measure, recorded a price
increase of 7.8% y/y in April, unchanged from the previous month. The
implementation of the review of the electricity tariff has been deferred to
2021.
Meanwhile, health showed price increases of 1.0% m/m and 10.3% y/y in
April. Pharmaceuticals and medical services are both components of the health
segment, and both have predictably featured as primary drivers of core
inflation over the past three months.
At its latest meeting, the monetary policy committee expressed its
concerns around heightened inflationary pressures. It argued that the recent
increase in pressure is largely due to a combination of factors, including:
disruptions in supply chains owing to restrictions on inter-state travels; the
reduced domestic supply of foreign exchange; the continued impact of the
deteriorating domestic infrastructure; and the spillover effects of Covid-19.
If pressed, we could add insecurity in food growing areas.
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