February 17, 2021/Cordros Report
Nigeria’s headline inflation maintained its uptrend in January 2021, rising to 16.47% y/y (December 2020: 15.75% y/y) – the highest level since April 2017. The outturn was 37bps higher than our estimate (16.10% y/y) and 32bps higher than Bloomberg average consensus estimate (16.15%). Asides from pre-existing supply chain challenges and structural constraints, we believe the low base from the prior year also contributed to the 71bps uptick in the headline index. On a month-on-month basis, headline inflation moderated by 12bps to 1.49%. This drop was largely due to dissipating impact of festive induced demand that stoked inflationary pressures in the prior month.
After hitting a 43-month high of 2.05% m/m in December 2020, food inflation tapered by 22bps to 1.83% m/m in January 2021. We believe this reflects the dissipating impact of festive induced demand, as well as some early gains from the reopening of the land borders which helped to bridge the food supply gap. However, the low base from the prior year pushed food inflation upwards on a year-on-year basis. Specifically, food prices rose by 101bps to 20.57% y/y – the highest since the NBS started keeping the current data series. In our view, this reflects the lingering impact of insecurity in the major food-producing states, and supply chain disruptions occasioned by the COVID-19 pandemic.
Core inflation rose by 15bps to 1.26% m/m, the highest reading since June 2017. Sifting through the breakdown provided, the surge in the core basket reflects price pressures in alcoholic beverage, tobacco, and kola (+11bps), clothing and footwear (+2bps), health (+2bps), HWEGF (+1bps), furnishings, and household equipment maintenance (+1bp) and transport (+1bp). The impact of the foregoing more than offset gains from the communication (-5bps), restaurant and hotels (-2bps), and education (-1bp) sub-components – all of which jointly account for just 11.4% of the core basket. We attribute the m/m increase to the continued impact of the soft hike in electricity tariffs and the PMS price adjustments. Consequently, core inflation increased by 48bps in January to 11.85% y/y – the highest level since January 2018 (12.09% y/y).
Overall, we expect the pressure on consumer prices to remain skewed to the upside and now forecast headline inflation to print 1.38% m/m in February, with the effect of the low base from the prior year leading to a 68bps increase in y/y inflation rate to 17.15%.
