March 16, 2022/CSL Research

The Inflation descent in January 2022 was short-lived, as the Consumer Price Index (CPI) data released by the National Bureau of Statistics (NBS) showed that headline inflation reversed the downtrend, rising marginally by 10bps to 15.70% y/y in February. Expectedly, the uptrend in inflation was mainly driven by the core basket as core inflation rose by 14bps y/y, reflecting the global rise in energy prices, while food inflation further declined by 2bps y/y in February. M/m, inflation was also up by 16bps to 1.63%, however, stemming from pressures in the food basket (+25bps), further heightened by core inflation (+8bps).

Food inflation, at a 17-month low, printed 17.11% in February, still seeing favourable support from base effect in the prior year and gradually reaching the 16.0% level. Meanwhile, on a m/m basis, the food basket increased by 25bps to 1.87%. The monthly increase can be linked to the lingering fuel scarcity and its pass-through effect on transport costs for food items. Essentially, the fuel scarcity stretching beyond expectation at the tail end of the month left some imprints on food-related transport costs. Additionally, as the planting season begins in earnest, the gains associated with the past harvest season are beginning to wane. Core inflation increased by 14 bps to 14.01% y/y in February. On a m/m basis, the core basket rose by 8bps to 1.33% due to major increases in the price of utilities (gas, & fuels), tobacco, spirit, transport-related costs, and clothing.

Looking ahead, inflation is expected to rise in March due to the fuel scarcity, which continued into March and the significant rise in the cost of deregulated petroleum products such as diesel and aviation fuel. Also, structural problems affecting food supply could worsen further by the country’s vulnerability to disruptions in Eastern European food exports, given Nigeria’s agricultural-import dependency.

Also, the reversal of the direction of the inflation rate could become a rising concern for the CBN at the next MPC meeting amid the gradual normalisation of interest rates by global central bankers. However, we believe the CBN will still adopt a “wait and see” approach while maintaining the status quo at the next MPC meeting in March, especially as the sources of inflationary pressures are not demand-driven.

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