The Consumer Price Index (CPI)/Headline Inflation/All Item Index
The Consumer Price Index (CPI), which measures inflation rose by 15.63% Year-on-Year (YoY) in Dec’21. This is 0.23% higher than the rate recorded in Nov’21 (15.40%) but 0.13% lower than the rate recorded in Dec’20(15.75%). The uptick in headline inflation essentially ends the eight consecutive decelerations. The increase was on the back of the price acceleration in the food and core subindices.
Also, on a month-on-month (MoM) basis, the Headline Index increased by 1.82% in Dec’21; this is 0.74% higher than the rate (1.08%) recorded in the previous month. The sharp increase in monthly headline inflation resulted from the upsurge in prices of staple food items relative to the preceding month.
The Food Inflation
The Food sub-index inched up by 17.37% YoY in Dec’21 compared to 17.21% in Nov’21 but relatively lower than 19.56% in Dec’20. Similarly, on a MoM basis, the food inflation increased by 2.19% in Dec’21, up by 1.12% from 1.07% recorded in Nov’21.
The rise in the food sub-index was caused by increases in bread and cereals, food product, meat, fish, potatoes, yam and other tubers, soft drinks and fruit.
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 13.87% YoY in Dec’21 and increased by 0.02% compared with 13.85% recorded in Nov’21. Also, on a MoM basis, the core sub-index increased by 1.12% in Dec’21, down by 0.13% compared with 1.26% recorded in Nov’21.
The highest increases were recorded in the price of gas, liquid fuel, wine, actual and imputed rentals for housing, narcotics, tobacco, spirit, cleaning, repair and hire of clothing, garments, shoes, and other footwear and clothing materials, other articles of clothing and clothing accessories.
The headline inflation reversed its eight consecutive moderation trends in Dec’21 on the back of the uptick in staple food prices in a magnitude that was more significant than the typical seasonal price uptrend affiliated with the December festive season. As a result, monthly food prices for December rose at the fastest pace in over four years as existing inflationary drivers like FX scarcity, Naira depreciation, and supply disruptions were exacerbated by a festive induced upsurge in food demand (notably, disturbing uptrend in the prices of imported foods and alcoholic beverages, tobacco and kola rose by 6pbs and 53bps to 17.34% and 13.68% YoY, respectively, in the month under review).
Despite the reversal in the inflation trend, we expect the impact of the base effect to resume in the first quarter of the year, but beyond this period, the outcome would likely become immaterial. In addition to the wane of the base effect, the subpar planting season in 2021 should start to adversely impact food prices as we move further into the year, alongside elevated energy prices being an upside risk to inflation in 2022.