January 15, 2024/Coronation Research

The NBS has released its December inflation report to show
 
Headline rate  28.92% y/y (28.20% in November);
Core rate 23.06% y/y (22.38%); and
 Food rate 33.93% y/y (32.84%).

• December headline inflation increased by +72bps (when compared with the previous month) to 28.92% y/y. The uptick in the headline inflation can be partly attributed to the seasonal demand boost associated with end-year festivities.
• On a month-on-month basis, headline inflation increased by +20bps to 2.29% compared with 2.09% recorded in the previous month.
• Food inflation (33.93%) recorded an increase of +109bps when compared with the previous month. The highest increases were recorded in the prices of bread, cereals, oil and fat, meat, milk, cheese, egg, potatoes, tubers, fish, potatoes, and yam among others.
• On a y/y basis, imported food price inflation increased by +116bps to 24.90% y/y from 23.74% y/y recorded in the previous month.
• Core inflation increased by +68bps to 23.06 % y/y from 22.38% y/y recorded in the previous month. However, Inflationary pressure was felt across, passenger transport by air and road, medical services, housing, and pharmaceutical products.
• The housing water, electricity, gas and other fuel segment increased to 24.0% y/y and 2.0% m/m. The transport segment also recorded an increase of 26.74% y/y and 1.55% m/m.
• Based on the NBS’ headline inflation by state, Kogi recorded the highest (35.58% y/y). Meanwhile, Borno recorded the lowest (23.27% y/y) in December ‘23. It is worth noting that household baskets vary across states due to different consumption patterns.
• Inflation continues to be driven by structural issues such as high logistic costs, poor infrastructure, storage issues, exchange rate pressure, elevated cost of PMS as well as insecurity (especially in food-producing areas).
• The CBN’s core mandate remains price stability. Our inflation outlook points towards further upticks in the headline inflation in Q1 2024. Therefore, expectations around subsequent MPR hikes to combat rising inflation is not far-fetched.
• In recent years the transmission effect of MPR hikes has been weak in relation to combating rising inflation. Looking ahead, we anticipate a firmer handshake with the fiscal authorities, emphasizing a nuanced approach to address inflationary pressures. The CBN’s halt in usage of quasi-fiscal tools signals a commitment to a more cohesive policy stance.

To read the full report click here