Inflation Rate Rises Further to 18.17%

…as all composite of the CPI recorded increases in the period

Headline inflation rate rose further to 18.17% in March 2021 from 17.33% in February 2021. Month-on-month (MoM), the index increased by 1.56% in March from 1.54% in February 2021. Food inflation surged to 22.95% in March 2021 from 21.79% in February 2021. MoM, the food index rose by 1.90% in March from 1.89% in February 2021. Similarly, core inflation increased year-on-year (YoY) to 12.67% in March 2021 from 12.38% in February 2021.

Month-on-month, the core index rose at a slower pace of 1.06% in March from 1.21% in February 2021. The year-to-date average headline inflation stood at 17.32% as of March 2021.

Analysis

Headline inflation rose for the nineteenth consecutive month to 18.17% YoY in March 2021, as all composites of the CPI recorded an increase in the period. The index growth touched a 50-month high driven by a surge in food prices. Food inflation increased by 22.95% YoY in March 2021 to set a record as the highest increase since the CPI was rebased in 2009.

The upward trajectory in food inflation since August 2019 has been on the back of the worsening security situation in the country, particularly in central food-producing states. The farmers and herders crisis, as well as the banditry activities, have continued to constrain output. Also, adverse weather conditions impacted negatively on local food production.

The upward adjustment in fuel prices, which resulted in rising transport cost over the period, also contributed to the rise in food prices. Other persisting issues that have kept prices elevated include legacy challenges such as lack of storage facilities, poor road network, and poor farming practice, among others.

Elsewhere, core inflation rose by 12.67% YoY in March 2021. We believe that the increase was primarily driven by the continued scarcity in the FX market as people continued to rely on the parallel market to meet demand.

Expectation

We expect the increase in headline inflation to persist in the short term, driven by food inflation.

While the monetary authorities have continued to intervene in the Agric sector by providing credit at a single-digit rate, the worsening security situation has continued to dwarf their efforts. Also, the persistent scarcity in the FX market and possible adjustment in fuel prices are downsides to inflation as we advance.

Other Highlights:

• Food inflation increased by 84bps to 22.95% YoY in March 2021 from 21.79% in February 2021. Month-on-month, the index rose by 1.90%, relative to the 1.89% recorded in February 2021. The sharpest price increases in the index were on bread & cereals; fish; potatoes, yam, and other tubers; vegetables; meat; oil & fats; and fruits.
• Core inflation increased YoY to 12.67% in March 2021 from 12.38% in February 2021. The index increased MoM by 1.06%, from 1.21% in February 2021. Significant price increases were recorded in passenger transport by air; medical services; maintenance and repair of personal transport equipment; pharmaceutical products; motor cars; dental services; hairdressing salons; hospital services; vehicle spare parts; passenger transport by road; miscellaneous services relating to the dwelling; paramedical services; and personal grooming establishment.