December 16, 2022/CSL Research
Based on the Consumer Price Index (CPI) data released by the National Bureau of Statistics (NBS), the headline Inflation number rose for the tenth consecutive time this year.
Headline inflation increased by 38bps to 21.47% in November 2022 to 21.47%, 607bps higher than 15.40% recorded in November 2021. Month-on-month, headline inflation also increased, up 15bps to 1.39% in November from 1.24% in October.
While the month-on-month increase can be attributed to the expected increase in prices which accompanies the increase in demand during the festive season and the lingering impact of the floods on food prices, the key drivers of y/y growth in headline inflation 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 which has remained the key driver of the composite number, rose 24.13% y/y in November compared with 23.72% y/y in October. On a month-on-month basis, the food inflation rate in November was 1.40%, 17bps higher than 1.23% recorded in October 2022. This increase was attributed to an increase in prices of some food items like oil and fat, fruits, fish, and tubers.
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 flooding and widespread insecurity. Pent up festive demand has also added another layer of pressure.
On the other hand, core inflation rose to 18.24% in November compared to 17.76% in October while month-on-month, the core basket was up 1.67% in November 2022 compared 0.93% in October.
The highest increases were recorded in prices of gas, liquid fuel, passenger transport by air, vehicles spare parts, solid fuel. Despite the multiple hikes in the monetary policy rate this year, headline inflation has remained stubbornly sticky, and we continue to reiterate that monetary policy tools will have limited impact on inflation numbers given that supply side factors are the main the drivers of inflation.
Looking ahead, we expect the factors mentioned above to continue to keep inflation high amid increasing election spending. We forecast headline inflation will close the year at 21.89% in December.
