Inflation decelerates but bites deeper amid a festive season
Investors seeking a hedge against inflation Naira pressure leaves core index high since April 2017
THE DECEL ERATION IN annual inflation for the eighth straight month was induced by a milder uptick in food prices which printed 17.2 percent year on year in November 2021, from the 18.3 percent year on year reported in October 2021. This is an outcome that economic analysts have voiced out was supported by a high base from last year, as well as the softer hikes in the price of farm produce, amid the harvest season, which at the moment stands at 0.9 percent month on month in November 2021, as against the 1.1 percent month on month in October 2021; and 2.4 percent in the same period of 2020. The National Bureau of Statistics (NBS) last Wednesday published the monthly consumer price inflation index for November 2021, which showed that the disinflation trend was sustained in the month, as the headline inflation rate rose to 15.4 percent year on year, indicating a 12-month low, against the 15.9 percent reported in October 2021. The moderation may be lauded in this period when the economy and Nigerians are gnashing their teeth as they grapple with protracted insecurity challenges, supply chain bottlenecks, and the likely increase in power tariff, which to some analysts have been a downside potential to the expected slowdown in the headline index. But going into the festive season, it is hard to turn anywhere without having to mention inflation as being a passing trend or one that is here to stay. The threat of the global pandemic still hangs on the neck of the global economy, creating a mismatch which seems ongoing between demand and supply. From another viewpoint, the persistent increases in the prices of commodities will leave Nigerians experiencing the weather events, which have impacted agriculture and in turn added pressure to food prices across the federation. Although Nigeria’s headline inflation index, which has been on a slow pace, has benefitted from the favourable base effects from the elevated readings of the previous year, it can be pointed out, specifically, that imported food inflation has stayed stubbornly on the high side and consumers are feeling the brunt gravely, as some firms are still finding it difficult to get forex despite the Central Bank of Nigeria’s increased supply of foreign exchange to eligible users through formal channels, such as the NAFEX window for importers and exporters. Meanwhile, the NBS commentary also cites a wide range of goods as those recording the highest price increases among components of the core index. Thus, the core prices increased 13.9 percent year on year to become the steepest increase reported since April 2017, and this can be said to have been triggered by pressure on the Naira, as well as the component items for the core index except for health, transport, and communication. However, some components, as analysts say, may be related to volatile energy prices, such as passenger transport by road and air, and fuels and lubricants, and others more to the fallout from COVID-19, and just to mention, pharmaceutical products. However, economic analysts at FBNQuest Research have said that they, “Do not see core inflation in the double-digits year on year, let alone accelerating, under what they would term conventional dynamics for household demand.” This assertion by analysts takes us back to supply-side factors at the crux of the matter, leading to our mention of insecurity; to which we have to add poor infrastructure, the legacy of border closures, the shortage of foreign exchange, the disruption to supply chains as a result of the pandemic, and many more. Nevertheless, we can say the trend for inflation is again positive; yet, the headline number remains far above the CBN’s target “reference range” of between six percent and nine percent year on year, and sticky, due to the supply-side constraints. Inflation numbers may be on a deceleration, but in reality, consumers are seeing prices rise for nearly everything, from petrol at the pump station, to chicken in the open and supermarkets across the country, while portfolio investors across the globe may be searching for assets that can offer protection. But one way investors can help protect against inflation is by investing in companies that have pricing power. Factually, stocks have been seen as potential hedges against inflation. Investors have believed that as prices of goods increase, so do companies’ revenues and earnings over the course of time. Unlike individuals, companies have the ability to raise prices to lean into inflation’s punch. So the fuss about inflation is often that the higher the rate, the faster the rate at which a currency’s purchasing power is eroded; and that tells more on the purchasing power of the average consumer. In another observation, while weighing the expenditure pattern of consumers across states, food inflation was reported highest in Gombe, Kogi and Nasarawa states, whereas Edo, Rivers and Osun states recorded the slowest rise in food inflation on a year on year basis. On the other hand, the month on month comparison has Enugu, Imo and Ekiti states with the highest food inflation despite the fact that Jigawa and Ogun reported the slowest rise on a month on month period, respectively. But interestingly, Akwa Ibom State recorded price deflation or negative inflation, which is a decrease in the general price level of food or a negative food inflation rate in the review period.