November 11, 2023/InvestmentOne Report
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- Inflationary pressure remains persistent in the Nigerian economy as households and businesses continue to grapple with high cost of living and operation. According to the newly released Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS), headline inflation rose to an eighteen year high of 27.33% y/y in October, 61bps higher than what was recorded in the prior month, as food and energy prices keep stoking unusually elevated inflation.
- As per the norm, the food basket, which constitutes about 50.00% of overall CPI, was the major driver of inflation as food prices rose further to 31.52%, 88bps above 30.64% recorded in the previous month. According to details from the report, the rise in food inflation was propelled by increases in the prices of Bread and cereals, Oil and fats, Potatoes, Yam, and other tubers. In our view, the consistent increase in food items may not be unconnected to the unabating security challenges in food producing parts of the country which has contributed to shortage of food supply in past months.
- On the other hand, excluding volatile food and energy prices, the core inflation followed suit in the upward trend as the core index advanced to 22.58% y/y in October, 74bps higher than 21.84% seen in the preceding month. The rise in core inflation can be largely attributed to the aftermath of the fuel subsidy removal which drove PMS prices significantly high to a range of N590 – N680 depending on the specific location. This is in addition to already elevated diesel prices, which is affecting aggregate cost of transportation and other needs.
- Going forward, we envisage further northward movement in inflation figures in the near to medium term which should be driven by higher cost of transportation and the persistent insecurity concerns affecting food production that has led to shortage of food supply across the Nation. Food inflation is also expected to be pressured by exchange rate depreciation and in turn affect the prices of imported food. However, we expect the pace of increase in food inflation to be moderate even as month-on-month numbers slow down due to the current harvest season.
