October 18, 2022/CSL Research
Based on the Consumer Price Index (CPI) data released by the National Bureau of Statistics (NBS), the headline Inflation number retained its upward trend in September as price levels remain elevated compared to the previous year. Headline inflation increased by 25bps to 20.77% in September 2022, 414bps higher than 16.63% recorded in September 2021.
The 20.77% came 19bps shy of our earlier forecast of 20.96%. Albeit, the September headline inflation moderated month-on-month by 41bps to 1.36% m/m from 1.77% m/m in August 2022 largely due to the moderating impact of the harvest season. While this is a new 17-year high (from October 2005 to August 2022), the key drivers remain the disruption in local food supply (caused by widespread insecurity), imported inflation (triggered by disruption in global supply chain), and local currency depreciation.
Food inflation has remained above 20.0% since June, reaching 23.34% in September and is also currently at a 17-year high. On a month-on-month basis, the food basket grew slower by 1.43% compared to 1.98% in August. Harvest season and decline in global food prices are key possible factors responsible for the slower increase Food Inflation.
The United Nations’ Food and Agriculture Organization (FAO)’s Food Price Index averaged 136.3 points in September 2022, down 1.5 points (1.1%) from August, marking the sixth monthly decline in a row. The FFPI’s decline in September was driven by a sharp fall in the international prices of vegetable oils and moderate decreases in those of sugar, meat and dairy products.
However, we continue to link the high domestic food prices to the negative pass-through from higher logistics and haulage costs amidst supply disruptions occasioned by widespread insecurity. On the other hand, core inflation rose by 40bps to 17.60% in September. Monthon month, the core basket grew by 1.59%, same rate recorded in August. The highest increases were recorded in prices of Gas, Liquid fuel, Passenger transport by Air, Passenger travel by road, and Solid fuel.
Looking ahead, we expect inflationary pressure to persist chiefly on the aforementioned factors coupled with the heavy flood recently experienced across the country and the increasing election spending. We retain our headline inflation forecast for October 2022 at 20.96%. While we expect a slight moderation in food inflation due to the harvest season, we expect core inflation to remain pressured.
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