Food, petrol drive inflation for 10th straight month

Nigeria’s headline inflation, which showed signs of cooling in three straight months, gained steam in November on the back of rising food prices and petrol scarcity.

The inflation rate quickened for the 10th straight month to a new 17-year high of 21.47 percent from 21.09 percent in October, according to data released by the National Bureau of Statistics (NBS) on Thursday.

According to the latest Consumer Price Index report, the month-on-month inflation rate for November was 1.39 percent, up from 1.24 percent in the previous month. Several parts of the country including Lagos, the commercial capital, saw the return of fuel queues last month.

“The increase in the monthly inflation rate can be attributed to the sharp increase in demand usually experienced during the festive season,” it said.

Damilola Adewale, a Lagos-based economic analyst, said that typically in November and December, there is a higher aggregate demand for goods and services. “Retailers and traders tend to add a little margin to the prices of products just to get Christmas profits.”

He said the additional margins added to the price increases, plus the rush from households to get both food and non-food items.

On a year-on-year basis, the inflation rate increased by 6.07 percent to 21.47 percent in November from 15.40 percent in the same period of last year.

The NBS report said the increase in the cost of importation due to the persistent currency depreciation and the general increase in the cost of production (e.g. increase in energy) are the likely factors responsible for the increase in annual inflation rate.

Food inflation, which constitutes 50 percent of inflation rate, recorded a month-on-month increase of 1.40 percent in November, up from 1.23 percent in October.

“The increase was attributed to an increase in prices of some food items like oil and fat, fruits, fish, and tubers,” the NBS said.

Analysts at Capital Economics, a London-based economic research firm, said the recent flooding was likely behind the rise in domestic food price pressures. “But currency weakness tied to the announcement of demonetization plans probably played a key role too.”

For core inflation, which increased to 1.67 percent in November from 0.93 percent in October, David Ibidapo, head of market data and research at AFEX Commodities Exchange, said the fuel scarcity was a contributing factor to the increase.

“Apart from the festive period, the fuel scarcity increased logistics and transport cost, which translated into increase in food prices,” he said.

The country’s latest round of fuel scarcity, which has yet to be resolved, compounded the woes of millions of Nigerians struggling to survive the inflationary period as the pump price of petrol increased to N230-N250 per litre from N170.

“We are experiencing scarcity because the product is not available. The price of a litre of petrol at private depots is currently between N205 and N210 as against N162.5,” Mike Osatuyi, operations controller of Independent Petroleum Marketers Association of Nigeria, said.

He added supply from the Nigerian National Petroleum Company, the sole importer of refined petroleum products, is not readily available to marketers.

The high inflation rate led to a 12 percent increase in household consumption expenditure to N27.3 trillion in the first half of 2022, the highest in five years, from N24.3 trillion in the corresponding period of 2021, according to the NBS.

This has squeezed consumers’ purchasing power, making many poorer. The multidimensional poverty index report released last month shows that 133 million people are poor in health, education and two other dimensions.

Inflation at 21.47 percent is very detrimental to the health of the economy, said Adewale.

“For individuals, it raises their budgetary expenditure while for corporations, it weakens their profitability prospects, and for the government, inflation makes government securities unattractive to investors,” he said.

Uchenna Uzo, a faculty director at Lagos Business School, said Christmas is going to be gloomy for consumers this year due to inflationary pressures.

“People are just going to be very cautious in where they are putting their money and will not go for any wastage. So, it will be a very cautious kind of Christmas,” he said.

The surge in inflation rate forced the Central Bank of Nigeria (CBN)’s Monetary Policy Committee to further raise its benchmark interest rate by 100 basis points last month to 16.5 percent.

“We expect another strong inflation reading in December. And policymakers will find it hard to justify not pushing ahead with one more interest rate hike in January. We have pencilled in a final 50 basis points increase to 17 percent,” analysts at Capital Economics said.

Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said the CBN should resist the temptation of further monetary policy tightening.

“The deployment of monetary tightening tools should be put on pause. The Nigerian economy is not a credit driven economy which is why the tightening outcomes have been inconsequential as a tool to tame inflation,” he added.

Yusuf recommended that inflation restraining strategies should accordingly focus on productivity boosting supply side factors and reduction in CBN financing of government deficit.