The Consumer Price Index (CPI), which measures inflation in Nigeria, rose by 21.09% Year-on-Year (YoY) in Oct’22, representing a new all-time high recorded since September 2005. This is 0.32% and 5.10% higher than the rate recorded in Sep’22 (20.77%) and Oct’21 (15.99%). The headline inflation spiraled upward, in line with the previous month’s hike. The increase recorded in October 2022 can likely be attributable to the disruption in the supply of food products exacerbated by flooding in major food-producing states, the increase in import cost due to the persistent currency depreciation, and the overall rise in the cost of production.
Also, on a month-on-month (MoM) basis, the Headline inflation index inched lower for the third consecutive month to 1.24% in Oct ’22; this is a 0.12% decrease from the rate (1.36%) recorded in the previous month (Sept 22). The decrease in monthly headline inflation was driven mainly by the decline in the core and food indices on a month-on-month basis due to the present harvesting season in the food sub-index.
The Food sub-index accelerated by 23.72% YoY in Oct ’22 compared to 23.34% in Sept ’22 and 18.34% in Oct ’21; this represents a 0.38% and 5.38% increase to Sept ’22 and Sep ’21, respectively. Food inflation climbed for the eighth month to 23.72, the highest since October 2005. The 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, meat, fish, oil, and fat.
However, on an MoM basis, the food inflation stood at 1.23% in Oct ’22, a 0.54% decline from 1.43% recorded in Sept ’22. The fall was due to the price reduction of some food items like Tubers, Palm oil, Maize, Beans, and vegetables at the back of the current harvesting season.
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, surged by 17.76% YoY in Oct ’22, up by 0.16% and 4.52% when compared with Sept ’22 (17.60%) and Sep ’21 (13.24%) rates. Conversely, on an MoM basis, the core sub-index moderated to 0.93% in Oct ’22, compared to the rate recorded in Sept ’22 (1.59%).
The highest increases were recorded in prices of Gas, Liquid fuel, Solid fuel, Passenger transport by Air, road, and Solid fuel.
In line with our expectation of a persistent uptick in inflation, the inflation rate for October 2022 was due to higher diesel prices exacerbated by the Russian-Ukraine conflict, severe flooding in over 15 food-producing states, and persistent currency depreciation gave rise to the food and core subindices. Nigeria’s inflation continues to test new historic highs; despite the marginal decline in monthly food inflation, reflective of the current harvest season, the local economy’s legacy inflationary drivers (FX crisis, among others) persist. Notably, the perennial FX crisis held sway as the I&E Window saw a 1.35% deprecation in Oct’22 on an MoM basis, depreciating to N443.00/$; the parallel market rate also tested new lows of N900/$.
For the following month, we expect a similar trajectory in inflation rate on both the food and core segments due to several factors. For the food sub-index, we expect the impact of the severe flooding across food-producing states to linger. Also, Legacy issues such as insecurity and high logistics costs due to the bad road network in the country would continue to mount pressure on the supply of staple food items. Additionally, as we approach the festive season, we expect demand for staple food items to increase significantly. The combination of growing demand and reducing supply would subsequently increase prices.
For the core sub-index, persistent currency depreciation against the dollar in the I&E window and parallel market due to forex illiquidity as foreign exchange inflows remain subdued, posing an upside risk to inflation. Also, Elevated crude oil and gas prices supporting prices of Diesel, kerosene, and jet fuel would continue to increase the cost of production.