Inflationary Pressure Still Straining Pockets

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The latest inflation report (December) released by the National Bureau of Statistics (NBS) shows the sixteenth successive uptick in the y/y headline rate. In 2020 the highest m/m increase in the headline measure was 86bps in December while November, October and September registered rises of 66bps, 51bps and 47bps respectively. Food inflation has been the primary driver of this acceleration.

The latest inflation report tells us that the transport segment, which accounts for 6.5% of the basket, posted price increases of 1.2% m/m in December (unchanged from the previous two months) and 13.1% y/y, compared with 12.6% in November.

These increases experienced in the transport segment have been felt in consumers’ pockets. The transmission effect is seen in the fares paid by commuters on mass transportation. A separate report from the NBS reveals that the average fare paid by commuters for bus journeys within cities increased by 6.2% m/m and 78.5% y/y in December. Zamfara, Bauchi and Cross River states recorded the highest increases.

The same report discloses that the average fare paid by commuters for intercity bus journeys increased by 4.9% m/m and 41.1% y/y in the same month. We note that the FGN’s decision to halt subsidies of the petroleum downstream sector, resulting in higher prices for premium motor spirit (PMS, also known as gasoline and petrol) has contributed to the rise in mass/public transportation costs.

In December the acceleration in food price inflation was mainly driven by increases in prices of bread and cereals, potatoes, tubers, meat, fish and fruits. Based on the NBS’ Selected food price watch report, the average price of 1kg of potatoes increased by 9.8% y/y in December.

There was a pick-up in activity for restaurants in December as restrictions were relaxed during the festive season. However, concerns around a second wave of the coronavirus in Nigeria could result in another round of lockdowns across states. In December price increases of 1.0% m/m and 10.8% y/y were recorded in the restaurant and hotel segment.

The clothing and footwear segment within the inflation basket recorded increases of 1.1% m/m and 11.5% y/y. Since Q2 ’20, when social distancing and restrictions on outdoor activities heightened, items within this segment have not been regarded as essential or priority by consumers. This industry has been severely hit.

The price rises recorded in the health segment within the basket point towards the Covid-19 effect. In December increases of 1.3% m/m and 14.1% y/y were recorded for the segment. Pharmaceuticals and medical services continue to feature as leading drivers of core inflation.

At its latest meeting held last month, the monetary policy committee (MPC) noted that as output rebounds, supported by government efforts, inflationary pressure will likely begin to moderate in the near-term. However, underlying uncertainties in the oil market and the expected second wave of the Covid-19 virus may pose some downside risks to this projection.

The MPC reiterated the adverse impact of insecurity on food production, stressing that the current uptick in inflationary pressure is not greatly associated with monetary factors but due mainly to legacy structural factors across the economy. The committee recommended that the FGN redouble its efforts at strengthening infrastructural efficiency and addressing the emerging security challenges in the country.

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