Culled—Proshare

October 15, 2020

by FBNQuest Research

Today we turn our attention to inflation. The headline rate has maintained an upward trajectory since September 2019. This year the highest increase in the headline measure has been 41bps in August while May, June and July registered rises of 11bps, 14bps and 26bps respectively. Food inflation has been the primary driver of acceleration in the headline rate. Supply-side constraints which have worsened due to the Covid-19 pandemic are partly to blame.                                                                                             

The latest inflation report tells us that the transport segment, which accounts for 6.5% of the basket, showed price increases of 1.1% m/m in August (unchanged from the previous month) and 11.2% y/y, compared with 10.8% in July.

A separate report from the National Bureau of Statistics reveals that the average fare paid by commuters for bus journeys within cities increased by 12.7% m/m and 48.0% y/y in August. Zamfara, Ekiti and Cross River states recorded the highest increases.

The same report discloses that the average fare paid by commuters for intercity bus journeys increased by 8.7% m/m and 26.7% y/y in August. The FGN’s decision to deregulate the petroleum downstream sector, resulting in higher prices for petroleum motor spirit (PMS), contributed to the hike in mass/public transportation costs.

In August the acceleration in food price inflation was mainly driven by increases in prices of bread and cereals, potatoes, tubers, meat, fish, fruits, oils and vegetables. Our channel checks show that the price of one tuber of yam is currently N1, 500, compared with N1, 000 which was obtainable pre-Covid.

The restaurants and hotels segment has been severely hit by the pandemic. Restaurants have been forced to depend on delivery services. There may be some room for respite given the easing on lockdowns and granting of permits for controlled social gatherings. In August price increases of 0.9% m/m and 9.9% y/y were recorded in this segment.

The price rises recorded in the health segment within the basket emphasizes the Covid-19 effect. In August increases of 1.2% m/m and 12.1% y/y were recorded for the segment. Pharmaceuticals and medical services continue to feature as leading drivers of core inflation.

At its latest meeting held in September, the monetary policy committee noted that based on available evidence, the rise in inflation was not due to monetary factors. Rather, there was overwhelming evidence that it reflected the prevalence of structural rigidities and supply shocks.

The committee stressed the urgent need for a combination of broad-based monetary and fiscal policy measures to curb the rise in inflation and contraction in output. These steps should involve targeted investment by the fiscal authorities to resuscitate critical infrastructure and by extension, improve the ease of doing business across the country.