Inflation rises to 15.63% after 8-month decline
Nigeria’s headline inflation rose to 15.63 per cent in December 2021, reversing an eight-month prior decline, a report by the National Bureau of Statistics has revealed.
This is an increase of 0.23 percentage points or 23 basis points over its closing value in November of 2021 when it closed at 15.40%.
Daily Trust reports that on a year-onyear basis, the new figure is a reduction of 0.12 percentage points when compared to 15.75% in the same month of 2020.
Nigeria’s inflation rate had been on a steady decline in the past 8 months since April 2021, moderating from the highs recorded in the previous year. However, the rate had just back-pedaled with an uptick in December 2021.
On a month-on-month basis, the headline index increased by 1.82% in December 2021, this is 0.74% points higher than the rate recorded in November 2021 (1.08%).
Meanwhile, the urban inflation rate increased by 16.17% (year-on-year) in December 2021 from 16.33% recorded in December 2020, while the rural inflation rate increased by 15.11% in December 2021 from 15.20% in December 2020.
Food inflation
Food inflation, which accounts for all volatile agricultural produce increased by 0.16% points to 17.37% in December 2021 compared to 17.21% recorded in the previous month.
On a month-on-month basis, the food sub-index increased by 2.19% in December 2021, up by 1.12% points from 1.07% recorded in November 2021.
The Bureau noted that this rise in the food sub-index was caused by increases in prices of bread and cereals, food product, meat, fish, potatoes, yam and other tubers, soft drinks and fruit.
The average annual rate of change of the food sub-index for the twelve-month period ending December 2021 over the previous twelve-month average was 20.4%, 0.22% points lower from the average annual rate of change recorded in November 2021 (20.62%).
Core inflation
The “All items less farm produce’’ or Core inflation, which excludes the prices of volatile agricultural produce stood at 13.87% in December 2021, up by 2.50 per cent when compared with 11.37% recorded in December 2020.
On a month-on-month basis, the core subindex increased by 1.12% in December 2021. This was down by 0.13$ when compared with 1.26% recorded in November 2021.
On the other hand, the highest increases were recorded in prices of gas, liquid fuel, wine, actual and imputed rentals for housing, narcotics, tobacco, spirit, cleaning, repair and hire of clothing, garments, shoes and other footwear and clothing materials, other articles of clothing and clothing accessories. States with highest inflation
In December 2021, all items inflation on a year-on-year basis was highest in Ebonyi (18.71%), Kogi (18.37%), and Bauchi (17.81%), while Kwara (12.32, Edo (13.46%) and Cross River (13.93%) recorded the slowest rise in headline Year on Year inflation.
In December 2021, food inflation on a year-on-year basis was highest in Kogi, (22.82%), Enugu (20.65%) and Lagos (20.27%), while Edo (13.24%), Kaduna (13.53%) and Sokoto (14.82%) recorded the slowest rise.
Expert explains implications
An economist and Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf said the surge in demand during the December festivities must have played a role in the marginal spike and reversal of the deceleration trend in headline inflation.
Yusuf explained that inflationary pressures remain a significant macroeconomic risk in the Nigerian economy. “It is a major concern to both businesses and the citizens.”
He listed the implication to include the escalation of production and operating costs for businesses, leading to erosion of profit margins, drop in sales, the decline in turnover and weak manufacturing capacity utilisation.
He said high food prices impact adversely on citizens’ welfare and aggravate poverty adding that weak purchasing power will pose a significant risk to business sustainability.
Major drivers of inflation and cost in the economy
The analyst identified a surge in consumer spending driven by the December festivities.
Exchange rate depreciation. Liquidity challenges in the foreign exchange market impact adversely on manufacturing output. Security concerns affecting agricultural output.
He also identified climate change effects on agricultural production, adding that there are increasing cases of flooding and desertification in many parts of the country that have had a negative impact on agricultural output.
Yusuf also pointed at structural constraints affecting productivity in the agricultural value chain; High transportation costs affecting distribution costs across the country. This is also reflected in the huge differential between farm gate prices and market prices.
He said: “Monetisation of fiscal deficit [CBN financing of deficit] is highly inflationary because of the liquidity injection effects on the economy. This becomes worrisome when statutory thresholds are exceeded.
“High transactions cost at the nation’s ports increases the production and operating costs of businesses. High energy cost. High import duty on intermediate goods and raw materials.”
Recommendation to tame inflation
To tame the current inflationary pressure, the analyst explained that government needs to fix the following: Reform the foreign exchange market to stabilise the exchange rate and reduce volatility. Address forex liquidity issues through appropriate policy measures.
They also urged the government to address the security concerns causing disruption to agricultural activities. Address productivity issues in the real sector of the economy and address the challenge of high transportation costs.
Reduce fiscal deficit financing by the CBN to minimise the incidence of high-powered money in the economy. Manage climate change consequences to reduce flooding and desertification.
He also called for the restoration of normalcy and good order at the nation’s ports to reduce transaction costs. Reduce import duty on intermediate products and raw materials for industries to reduce production costs, especially in the light of the sharp depreciation in the exchange rate.