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Nigeria’s Inflation surges to 20.77% in September

The Consumer Price Index (CPI), which measures inflation, rose by 20.77% Year-on-Year (YoY) in Sept ’22, representing a new all-time high recorded since September 2005. This is 0.25% and 4.14% higher than the rate recorded in Aug ’22 (20.52%) and Sept ’21 (16.63%). The headline inflation spiraled upward, in line with the previous month’s hike. The increase recorded in September 2022 can likely be attributable to the disruption in the supply of food products, 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 Index inched lower for the second consecutive month to 1.36% in Sept ’22; this is a 0.41% decrease from the rate (1.77%) recorded in the previous month (Aug’ 22). The decrease in monthly headline inflation was driven mainly by the decline in the food index due to the current harvest season.

The Food Inflation

The Food sub-index rose by 23.34% YoY in Sep ’22 compared to 23.12% in Aug ’22 and 19.57% in Sep ’21; this represents a 0.22% and 3.77% increase compared to Aug ’22 and Sep ’21, respectively. 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, meat, fish, oil, and fat.

However, on a MoM basis, the food inflation stood at 1.43% in Sep ’22, a 0.54% decline from 1.98% recorded in Aug ’22. The fall was due to the price reduction of some food items like Tubers, Palm oil, Maize, Beans, and vegetables.

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 17.60% YoY in Sep ’22, up by 0.40% and 3.86% when compared with Aug ’22 (17.20%) and Sep ’21 (13.74%) rates. Similarly, on a MoM basis, the core sub-index remained unchanged at 1.59% in Sep ’22, the same rate recorded in Aug ’22.

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 September 2022 was exacerbated by the ripple effect of the Russian-Ukraine conflict (resulting in a surge in food and energy prices), giving rise to the food and core subindices. Nigeria’s inflation continues to test new historical 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 1.70% deprecation in Sep’22, falling to N437.03/$; the parallel market rate also crossed over N730/$.

October Outlook: Worsening Inflationary Pressures Ahead

For the following month, we expect a similar trajectory in inflation rate on both the food and core segments due to several factors. The food sub-index is likely to rise faster owing to the severe flooding occurring in over 15 states that will hinder harvesting activities during the harvest season. Some of the country’s major food-producing states have been hit by the disastrous event, including Kogi, Adamawa, Taraba, Jigawa, and Bauchi. 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. Conversely, 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 push up prices.

For the core sub-index, further currency depreciation of the Naira against the dollar in the I&E window and parallel market due to a strong dollar exacerbating inflationary pressures across Sub-Sahara Africa (SSA) 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 to stay high would continue to increase the cost of production. Lastly, the Nigeria Liquefied Natural Gas (NLNG) announced a force majeure due to the recent flooding, which could drive the price of cooking gas upward.