The Consumer Price Index (CPI)/Headline Inflation/All Item Index
The Nigerian Bureau of Statistics Friday, 15, April, released the inflation index. From the report, the Consumer Price Index (CPI), which measures inflation rose by 15.92% Year-on-Year (YoY) in Mar. This is 0.22% higher than the rate recorded in Feb’22 (15.70%) but 2.25% lower than Feb’21 (18.17%). Following a similar uptick recorded in headline inflation on a YoY basis in the previous month, the index inched up on the back of the food segment that nudged upwards. This represents the highest rate recorded since Oct`21.
Also, on a month-on-month (MoM) basis, the Headline Index increased to 1.74% in Mar’22; this is a 0.11% increase from the rate (1.63%) recorded in the previous month. The hike in monthly headline inflation reflects the growing inflationary pressures in both the food and core subindices, attributable to the ongoing Russia-Ukraine crisis.
The Food Inflation
The Food sub-index rose by 17.20% YoY in Mar’22 compared to 17.11% in Feb’22 and 22.95% in Mar’21. Also, on a MoM basis, the food inflation increased to 1.99% in Mar’22, up by 0.12% points from 1.87% recorded in Feb’22. The food inflation was largely driven by the pass-through effect of rising logistic costs.
This rise in the food index was caused by increases in the prices of Bread and cereals, Potatoes, yam and other tubers, Fish, Meat, Oils, and fats.
The Core Inflation/ The All Items Less Farm Produce
The “All Items less farm produce” or “Core Inflation,” which excludes the prices of volatile agricultural produce, stood at 13.91% YoY in Mar’22, 0.10% lower when compared with Feb’22 (14.01%) but was up by 1.24% when compared with Mar’21 (12.67%). Similarly, on a MoM basis, the core sub-index increased to 0.98% in Mar’22, down by 0.35% compared with 1.33% recorded in Feb’22.
The highest increases were recorded in prices of Gas, Garments, Cleaning, repair and hire of clothing, shoes and other footwear, Clothing materials, other articles of clothing and clothing accessories, Liquid Fuel, and Fuels and lubricants for personal transport equipment and other services in respect of personal transport.
Despite the support provided by the high base effect in Mar’22, the headline inflation inched up on the back of the increasing oil prices, the pass-through effect of fuel scarcity witnessed in the prior months (February & March), coupled with the rising insecurity in the food region of the country. Also, as the Russia-Ukraine crisis intensified, petroleum products (oil and diesel) skyrocketed, impacting transportation and logistics costs. Notably, Brent futures, the pricing benchmark for local petroleum products, averaged US$112.46 in the period under review, about 72% higher than Mar’21 price.
For the following month, we expect the effect of the fuel scarcity to fizzle out, given a normalisation of PMS supply across filling stations in the country. However, the geopolitical tension in Eastern Europe (which has resulted in increases in commodities and energy prices) still poses an upside risk to inflation. In addition, the supply disruptions arising from the Russia-Ukraine crisis could lead to a shortage in essential commodities items (wheat, flour, maize), given their significant positions in the world supply.
Beyond elevated energy prices, food prices in Nigeria may continue to increase on the back of festive induced demand coupled with persistent production and distribution problems, exacerbated by the supply disruptions in Eastern Europe food exports. In addition, the benefit of the high base effect will wane in subsequent months, posing a more pronounced increase in inflation indices, resulting in a probable rate hike in the next MPC meeting, though it may have a less impact if the hike is immaterial.