December 15, 2022/Cordros Report
The November 2022 inflation report recently released data by the National Bureau of Statistics (NBS) showed that the headline inflation rose by 38bps to 21.47% y/y – remaining at its highest point since September 2005. Decomposing the breakdown provided, price pressures were significant across the food (+40bps to 24.13% y/y) and core (+48bps to 18.24% y/y) baskets. As a result, the outturn was 10bps higher than Cordros’ estimate (21.37% y/y), with the deviation stemming from the core basket. Likewise, the inflation reading was 17bps higher than Bloomberg’s median consensus estimate (21.30% y/y). On a month-on-month basis, the headline CPI reversed the downtrend seen in the past three months, increasing by 12bps to 1.39%.
Unsurprisingly, food prices reversed the downtrend in the prior months, increasing by 17bps to 1.40% m/m in November (October: 1.23% m/m). We attribute the increase to (1) the passthrough effect of transport cost and (2) festive-induced demand. On the one hand, Processed and Imported food prices rose by 31bps and 5bps to 1.46% m/m and 1.49% m/m, respectively. On the other hand, Farm produce prices moderated by 30bps to 1.18% m/m, likely owing to the benefits of the ongoing harvest season amidst the lingering impact of the flooding incidents across the country. Indeed, despite the flooding incidents occurring in nearly all states except Ekiti state, Farming Early Warning Systems Network (FEWSNET) reported that as of mid-October, roughly 8.0% (nearly 750,000 hectares of cropland) of the total hectares cropped for major staples across the country were flooded in Nigeria, according to satellite estimates by the UN World Food Programme (WFP). A similar trend was witnessed on a year-on-year basis, as food prices rose by 40bps to 24.13% y/y, given price increase across the Farm produce (+30bps to 24.13% y/y) and Processed food (+43bps to 24.14% y/y) sub-baskets.
Similarly, the core inflation spiked by 74bps to 1.67% m/m, primarily reflecting the intensified PMS scarcity during the review period. In addition, the lingering impact of elevated energy costs and FX supply shortages also triggered the increase in the core basket. Consequently, we highlight that price pressures were significant across Transportation (+20bps to 1.67% m/m), Clothing & footwear (+28bps to 1.23% m/m), Alcoholic Beverage, Tobacco and Kola (+23bps to 1.46% m/m), and Utilities (+10bps to 1.40% m/m) sub-baskets. As a result, on a year-on-year basis, the core index rose by 48bps to 18.24% – its highest print in six years.
All told, we forecast the headline inflation to settle at 1.41% m/m in December, with the favourable base effect from the prior year translating to 20.98% y/y.
