Image Credit: Coronation Research

January 16, 2023/Coronation Economic Flashnote

The NBS has released its December inflation report to show –

Headline rate 21.34% y/y (21.47% in November);
Core rate 18.49% y/y (18.24%); and
Food rate 23.75% y/y (24.13%).   

• December’s headline reading declined by -12bps (when compared with the previous month) to 21.34% y/y.
• On a month-on-month basis, headline inflation increased to 1.71% from 1.39% recorded in the previous month. The m/m increase can be partly attributed to the seasonal demand boost associated with the end-year festivities and increases in the cost of production on the back of elevated energy prices. Other factors include transportation costs which were impacted by the recent fuel scarcity. 
• This increase is in line with our expectations of the m/m figure remaining at or above 1.5%, and 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 (23.75%) recorded a decline of -37bps when compared with the previous month. The highest increases were recorded in prices of bread and cereals, oil and fats, potatoes, yam, and other tubers as well as fish.
• On a y/y basis, imported food price inflation increased by 11bps to 18.35% y/y from 18.24% y/y recorded in the previous month.
• Core inflation increased by 25bps to 18.49% y/y from 18.24% y/y recorded in the previous month. Inflationary pressure was felt across gas, liquid fuel, garments, fuels and lubricants for personal transport equipment, solid fuel, passenger transport by air, and vehicle spare parts.
• The housing water, electricity, gas and other fuel segment increased by 17.52% y/y and 1.47% m/m. The transport segment also recorded an increase of 20.16% y/y and 1.78% 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 as well as the recent fuel scarcity.
• The NBS tracks headline inflation by state, with Bauchi recording the highest (23.79% y/y) and Taraba recording the lowest (18.98% y/y) in December ‘22. It is worth noting that household baskets vary across states due to different consumption patterns.
• Inflation is driven by structural issues impacting the cost of doing business such as insecurity, elevated commodity prices, exchange rate pressure, and increased spending on the back of the upcoming 2023 general elections, among others.
• Inflation is driven by structural issues impacting the cost of doing business such as insecurity, elevated commodity prices, exchange rate pressure, and increased spending on the back of the upcoming 2023 general elections, among others. To tame inflation, the CBN/MPC embarked on a contractionary stance last year. The policy rate was hiked by +500bps from 11.5% in April to 16.5% at end-2022.
• Given the MPC’s resolve to restore price stability while providing necessary support to the economy, in our view, another policy rate hike in H1 2023 is not far-fetched. The MPC is scheduled to hold its next meeting on 23 and 24 January ‘23.

To read the full report, click here