Nigeria’s Inflation Rate Now 16.47% as Food Index Hits 20.57%

• Headline inflation rate grew by 16.47% YoY in January 2021; 0.71% higher than 15.75% recorded in December 2020.
• Food inflation grew by 20.57% YoY in January 2021; 1.01% higher than 19.56% recorded in December 2020.
• Core inflation stood at 11.85% YoY in January 2021; 0.48% higher than 11.37% recorded in December 2020.

The increase in headline inflation marks the 17th-consecutive uptrend since September 2019, and the upsurge in January 2021 was largely spurred by the soaring rise in the prices of staple food items, which was exacerbated by a further uptick in the core sub-index.

Headline Inflation Rate

In January 2021, headline inflation increased by 1.49% MoM, a 0.12% decline from the rate of 1.61% that was recorded in the previous month. The yearly average rate rose to 13.62%, 0.37% greater than 13.25% recorded in the previous month. Both food and core subindexes contributed to the uptick, but we saw an increased magnitude from the core segment, reflecting the increments in energy prices.

Shortage of food supply continues to serve as a concern, as well as the exchange rate crisis that the economy is faced with. However, there was a noticeable slowdown in the month-on-month increase in the headline index, as the economy slightly eased out of the high year-end spending in December 2020.

Food Price Inflation

The food index rose by 1.83% MoM, a 0.22% decline from the rate of 2.05% that was recorded in the previous month. The yearly average rate rose to 16.66%, 0.49% greater than 16.17% recorded in the previous month. The month-on-month rate of food inflation declined slightly, largely reflecting a slowdown in demand for food items, following the sharp uptick in food purchases in December 2020.

Core Inflation

In January 2021, core inflation stood at 1.26% MoM, up 0.16% from 1.10% recorded in the previous month. The yearly average rate also rose to 10.52% last month, 0.21% greater than 10.31% recorded in the preceding month.

The highest increases were recorded in prices of Passenger transport by air, Medical services, Hospital services, Passenger transport by road, Pharmaceutical products, Paramedical services, Repair of furniture, Vehicle spare parts, Motor cars, Miscellaneous services relating to the dwelling, Maintenance and repair of personal transport equipment.

Nigeria’s Inflation Rate Now 16.47% as Food Index Hits 20.57%

Source: NBS, Comercio Partners

Analyst’s Comments

The year-on-year rate of inflation continues to reflect the grim economic reality of Nigeria, as we saw a further uptick in the headline index, as well as in the food and core categories. Most of the drivers that have supported and sustained the inflationary pressure through 2020 crossed into the new year.

Notable, we are still faced with shortages to the food supply, increased energy prices, a Covid induced strain on our healthcare sector, and an exchange rate dilemma. These factors have jointly helped raise the cost of production, worsened the cost of transportation, caused medical services to be luxuriously priced, and left food prices on a northward trajectory.

While we noticed the slowdown in the month-on-month inflation rates for the headline index and the food subindex, this trails our expectation of a slight moderation in demand and monthly inflation following December’s buy frenzy but does not earmark any meaningful improvement in the price trajectory for the economy.

Going forward, we maintain gloomy expectations for the trajectory of inflation, given the existing active drivers and other factors that could exacerbate the price increase. Notably, the continuous rise in the price of crude oil continues to be burdensome, given the federal government’s reluctance to walk back on the deregulation of the downstream oil sector. As at the print time, Brent crude was priced at $63.24 per barrel, which would translate into a PMS price that is north of N190 per litre.

Should the federal government fail to reintroduce subsidy, the pass-through effect of such a price increase would gravely impact the headline rate. Also, the increased fiscal spending planned out for 2021 would further inflate the economy in a bid to stimulate growth, and that would worsen inflation rate in coming months.