Persistent Inflationary Pressures, Stretched Pockets


Thursday, October 28, 2021   /09:25 AM / by FBNQuest Research / Header Image Credit: Yahoo News


Subsequent to our initial take on the September inflation figures, today we delve further into some of the drivers. The latest inflation report released by the National Bureau of Statistics (NBS) shows the sixth consecutive y/y decline in headline inflation to 16.63% in September from 17.01% in August. We attribute this decline mainly to positive base effects and note that the headline rate was up by 12bps m/m last month - a clear indication that even though there appears to be some disinflation, consumers' pockets remain stretched.

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Food price inflation dipped again last month to 19.57%, from 20.30% in August. Food accounts for 50.7% of the basket and has been the primary driver of the headline rate. On a m/m basis, the food sub-index recorded an increase of 19bps to 1.26%.


In the selected food price watch report for September, a separate report by the NBS, we see that all 43 food items surveyed recorded y/y price increases. Supply side constraints, a combination of insecurity and conflict and distribution challenges continue to exert upward pressure on food inflation, undermining the FGN's investment into the agriculture sector. Limited fx availability for food importation has also supported rising food prices.


According to the Premium Motor Spirit (PMS) price watch, the average price paid by consumers for PMS increased by 2.4% y/y but decreased m/m by -0.04% to NGN164.85 per litre in September '21 from NGN164.91 in August. The price of PMS has been relatively stable because pump prices are regulated and heavily subsidised by the government. At the 27th National Economic Summit on Monday, the World Bank's country director for Nigeria stated that Nigeria is on track to spend NGN2.9trn on PMS subsidy this year. We understand that the FGN has made provision for petrol subsidy only through H1 '22 and "is looking at" complete deregulation of the sector in H2.


The transportation segment, which accounts for 6.5% of the basket, again posted a price increase of 15.0% y/y and 1.1% m/m last month, unchanged from the rate of increase recorded in August. The NBS's transport fare watch shows that the increase in average fare paid by commuters for bus journeys within cities slowed to 1.1% m/m and 40.6% y/y in September, compared with 3.4% m/m and 50.0% y/y in the preceding month. Kebbi, Imo and Jigawa recorded the highest y/y increases.


The NBS report on Liquefied Petroleum Gas (LPG) prices reveals that the average cost of refilling a 12.5kg cylinder increased by 36.6% m/m and by 50% y/y to an average of NGN6,165 in September '21, from NGN4,514.8 in August. The persistent increase in LPG is attributed to supply shortages. According to the Nigeria LNG Limited (NLNG), its current maximum cooking gas production can only meet about 40% of the domestic market demand. A significant part of the remaining 60% is being met by imports. 

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

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