October 18, 2022/InvestmentOne Report

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• Nigeria’s inflation figures continue to hover at lofty levels as soaring consumer prices further shrank the incomes of households and businesses amid tough economic conditions. According to the latest Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS), headline inflation surged to a fresh high of 20.77% y/y in September 2022, 25bps higher than the 20.52% y/y printed in the prior month. Unsurprisingly, price pressures remain broad-based as we noted further uptick in both food and core inflation. On a month-on-month basis, consumer prices rose by 1.36%, slower than the 1.77% recorded in August 2022.
• As expected, food prices contributed mostly to the spiralling inflation in the period under review. In particular, the food index increased by 23.34% year on year in September, 22bps higher than the previous month’s increase of 23.12%. According to the report, the increase in the index can be attributed to the spike in the prices of bread and cereals, food products, potatoes, yams, and other tubers, oil, and fat. Also, the incessant upturn in food prices might not be unconnected to the lingering security challenges in food-producing parts of the nation, elevated energy prices fuelling higher transportation costs due to the Russian-Ukraine geo-political tensions.
• Furthermore, the persistent weakness of the Naira, driven by the FX liquidity constraints, continues to stoke pressure on food inflation, as we noticed from the imported food sub-index. Precisely, the sub-index was up by 17.99% y/y in the period under review, albeit below the previous month’s record of 20.50% y/y. On a month-on-month basis, the imported food sub-index inched up by 1.40% in September. Likewise, food inflation rose by 1.43% from a month ago, 54bps lower than the 1.98% printed in August 2022. This month-on-month deceleration comes against the backdrop of the continued decline in global agricultural and commodity prices in recent months as well as the onset of harvest season.
• Elsewhere, core inflation, which strips off volatile food prices, stood at 17.60% y/y in September (highest in 5 years), 40bps higher than the 17.20% y/y seen in August. Further details from the report revealed that prices of gas, liquid fuel, passenger transport by air and road, and solid fuel were major drivers of the increase in core inflation numbers. Transportation (18.74% year on year and 1.55% m/m), clothing and footwear (17.84% year on year and 0.81% m/m), miscellaneous goods (17.24% year on year and 1.49% m/m), education (16.88% year on year and 1.37% m/m), and housing, water, electricity, and gas (16.42% year on year and 1.29% m/m) all increased significantly. On a monthly basis, core inflation sub-index jumped by 1.59%, same as what was recorded in the previous month.
• Going forward, despite the month-on-month de-acceleration, we opine that the steady increase in consumer price pressures will remain tenacious in the short to medium term due to structural headwinds such as insecurity concerns, pass-through effects of high energy prices, and FX liquidity constraints. In addition, we expect the ravaging flood in major parts of the country to stoke further pressure on food inflation, outstripping the positive effect of the current harvest season, thereby, exacerbating the already lean food supply in the country. Furthermore, from a demand-pull perspective, the end-of-year festivities coupled with electioneering spending ahead of the general elections as campaign activities have kicked off fully should also contribute to the unabating rise in inflation. Considering this, we posit that the monetary authorities should continue their contractionary policy moves in order to quell skyrocketing inflationary pressures in accordance with their price stability mandate.