December 15, 2022/Coronation Economic Flash Note

Headline rate 21.47% y/y (21.09% in October);
Core rate 18.24% y/y (17.76%); and
Food rate 24.13% y/y (23.72%).  
  

• November’s headline reading increased by 38bps (when compared with the previous month) to 21.47% y/y. The uptick in the headline inflation can be partly attributed to increased import costs due to fx depreciation and spikes in operational costs on the back of rising energy costs. 
• On a month-on-month basis, headline inflation increased to 1.39% from 1.24% recorded in the previous month. The m/m increase is partly triggered by the seasonal demand boost associated with preparations for end-year festivities. We expected the m/m to remain at or above 1.5%, reflecting the lagging effect of food supply disruptions due to the incidents of flooding across states in the middle belt (i.e. the food basket region) in addition to fx depreciation and seasonal boost to demand.
• The food inflation (24.13%) recorded an increase of 41bps when compared with the previous month. The highest increases were recorded in fruits, oil and fat, and tubers.
• On a y/y basis, imported food price inflation increased by 15bps to 18.23% y/y from 18.08% y/y recorded in the previous month.
• Core inflation increased by 48bps to 18.24% y/y from 17.76% y/y recorded in the previous month. For the core inflation, price pressure was felt across gas, liquid fuel, garments, fuel, solid fuel, passenger transport by air, and vehicle spare parts.
• The housing water, electricity, gas and other fuel segment increased by 17.33% y/y and 1.40% m/m. The transport segment also recorded an increase of 19.53% y/y and 1.67% m/m. These increases in the transport segment can be partly attributed to the price hikes in deregulated products such as diesel, kerosene, and aviation fuel and the recent fuel scarcity.
• The NBS tracks headline inflation by state, with Ebonyi recording the highest (26.11% y/y) and Kaduna recording the lowest (18.87% y/y) in November ‘22. It is worth noting that household baskets vary across states due to different consumption patterns.
• The CBN’s in-house estimates suggest that inflation is expected to maintain its upward trend, driven by exchange rate pressure, build-up of increased spending and demand for naira on the back of the upcoming 2023 general elections, among others
• To tame rising inflation, the MPC has embarked on a contractionary stance this year. In 2022, the policy rate was hiked by +500bps from 11.5% recorded in January to 16.5% in November. The MPC is scheduled to hold its next meeting in January 2023.

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