October 17, 2023/CSL Research

Headline inflation maintained its upward trend in September, increasing to 26.72%, which is 92bps higher than the 25.80% recorded in August and 594bps higher than the 20.77% recorded in August 2022. Month-on-month, headline inflation slowed to 2.10%, which is 108bps lower than the 3.18% recorded in August. The growth in headline inflation was driven by increases in both food and core inflation. The CPI basket saw significant growths in the components of food & non-alcoholic beverages (13.84% y/y), housing water, electricity, gas & other fuel (4.47% y/y), clothing & footwear (2.04% y/y), transport (1.74% y/y), furnishings & household equipment & maintenance (1.34% y/y), education (1.05% y/y).

Food inflation, a major driver of headline inflation, increased by 130bps to 30.64% in September from 29.34% in August. On a month-on-month basis, the food inflation rate declined to 2.45% compared with 3.87% in August. The Nigerian Bureau of Statistics (NBS) attributed the year-on-year increase in food inflation to the rise in prices of oil and fat, bread and cereals, potatoes, yam and other tubers, fish, fruit, meat, vegetables and milk, cheese, and eggs. Core inflation rate, which excludes the prices of volatile agricultural produce and energy grew to 21.84% from the 21.15% recorded in August. The highest increases were recorded in passenger transport by road, passenger transport by air, medical services, repair of furniture, maintenance, and repair of personal transport equipment, etc.

The removal of petrol subsidies and the devaluation of the exchange rate continue to impact the prices of goods and services, as headline inflation reaches new highs. Despite the recent moderation in global food prices, food inflation remains a primary driver of the country’s headline inflation due to the direct and indirect effects of the devaluation of the exchange rate and the fuel subsidy removal. We expect headline inflation will continue to increase till the end of the year. If other policies such as the implementation of new import duties on selected goods and new taxes from the Finance Act are implemented before year end, headline inflation may reach a peak of 29.8% as we have earlier forecasted.

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