The Consumer Price Index (CPI), which measures inflation, rose by 17.71% Year-on-Year (YoY) in May’22. This is 0.89% higher than the rate recorded in Apr’22 (16.82%) but 1.30% lower than May’21 (0.22%). The headline inflation spiraled upward, in line with the previous month’s hike. The increase recorded in May 2022 was on the back of price acceleration in the food and core subindices, representing the highest rate recorded since June 2021.
Also, on a month-on-month (MoM) basis, the Headline Index increased to 1.78% in May’22; this is a 0.02% increase from the rate (1.76%) recorded in the previous month (Apr’22). The hike in monthly headline inflation (Core and Food Subindices) mirrors the inflationary pressures faced globally, exacerbated by the ongoing Eastern Europe crises which has given rise to commodities and energy prices.
The Food Inflation
The Food sub-index rose by 19.50% YoY in May’22 compared to 18.37% in Apr’22 and 22.28% in May’21. Also, on a MoM basis, the food inflation increased to 2.01% in May’22, up by 0.01% point from 2.00% recorded in Apr’22. The food inflation was largely driven by the pass-through effect of supply chain disruption.
This rise in the food index was caused by increases in the prices of Bread and cereals, Food products n.e.c., Potatoes, yam, and other tubers, Wine, Fish, Meat, and Oils
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 14.90% YoY in May’22, rising by 0.72% and 1.75% when compared with Apr’22 (14.81%) and May’21 (13.15%) rates. Similarly, on a MoM basis, the core sub-index increased to 1.87% in May’22, up by 0.65% compared with 1.22% recorded in Apr’22.
The highest increases were recorded in prices of Gas, Liquid fuel, Solid fuel, Cleaning, Repair and Hire of clothing materials, and Passenger transport by road.
In line with our expectation of a sustained uptick in inflation, the inflation rate for May 2022 was exacerbated by rising oil prices (elevated gas prices) and supply chain bottlenecks (crop supply disruption), in addition to the immateriality of the base effect (if any), giving rise to the food and core subindices. A shortfall in global oil supply was witnessed during the month under review, driven majorly by the Russia-Ukraine crisis and some oil-producing countries’ inability to meet their production quotas (e.g., Nigeria). While the Monetary Policy Committee (MPC) hiked the interest rate by 150bps with the hope of improving net foreign inflows and taming the rising inflation, the aftermath proved immaterial as all inflation indices accelerated, in sync with our opinion that rate hikes may not address the rising inflation as the supply-driven inflation is more impacted by structural issues (requiring synergy of fiscal and monetary policies), evidenced by legacy drivers like food production shortages, insecurity issues, and abysmal transportation infrastructure.
For the following month, we expect a similar trajectory in inflation rate on both the food and core segments, given that the underlining drivers still persist. Also, due to rising inflation in developed and sub-Saharan African economies, Nigeria is also at risk of imported inflation being an import-dependent economy.