By Charles Abuede
- Posts 3-year high at 15.75%
- Bears fangs on economy
- Headline index majorly driven by rises in food, core inflation
As Nigerians grapple with the incessant ascension in food prices, it is now no longer speculation that the menace of poor harvest and storage facilities, the disruptions from the coronavirus pandemic, as well as the recent flooding, which eroded several farmlands in the north in 2020 is continuing to reverberate, resulting in adverse effect on price increases of agricultural commodities in the country.
But one thing remain very clear, say many observers of the Nigerian economic space, that without policies in place to rein in inflation, Nigerians will continue to gnash their teeth as they take in the full impact of rising basic commodity prices.
December inflation numbers released at the weekend showed that the country’s headline inflation rose sharply for the 36th consecutive month to 15.75 per cent year-on-year, reflecting nearly all of consumers’ and analysts’ expectations, many of whom had projected that the consumer price index will rise faster than had earlier been thought.
Some analysts’ notes had also contained the opinion that the continued rise of the headline index will lead to a weaker economy in line with the notion that inflation constrains economic growth.
The National Bureau of Statistics putting out the grim report had shown that a 0.86 per cent point increase between the number posted in November (14.89 per cent) and the December figure (15.75 per cent), showing a resilience and an indication that it does not appear it is going to let up anytime soon. The rate also showed that on a monthly comparison, the headline index rose by 1.61 per cent in December 2020, indicating a 0.01 percentage point higher than the 1.60 per cent recorded in the prior reported month. The current CPI index is the highest figure since December 2017 when Nigeria recorded 15.37 per cent as headline inflation index.
According to the report from the official statistics office, the food and core components of the food sub-index, major drivers of the headline inflation, rose by 19.56 per cent and 11.37 per cent respectively in December 2020 compared to 18.30 per cent and 11.05 per cent in November 2020. The rise was precipitated by increases in the prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, vegetable, fish and oils and fats.
A further breakdown of the data from the NBS revealed that the core inflation, which excludes the prices of volatile agricultural produce, stood at 11.37 per cent in December 2020, up by 0.32 per cent when compared with 11.05 per cent recorded in November 2020, while the sub-index of the core inflation increased by 1.10 per cent in December 2020 on a month on month comparison. This was up by 0.39 per cent when compared with 0.71 per cent recorded in November 2020.
In analysing price movements under the state profiles, the Abuja based statistics bureau reported that food inflation on a year on year basis was highest in Edo (24.14%), Kogi (23.14%) and Sokoto (22.24%), while Bauchi (16.53%), Abia (16.04%) and Nasarawa (15.71%) recorded the slowest rise. Similarly, all items inflation on year on year basis was highest in Bauchi (19.85%), Edo (18.15%) and Kogi (18.40%), while Lagos (14.05%), Kwara (13.91%) and Abia (13.30%) recorded the slowest rise in headline Year on Year inflation during the month of December.
Taking a review of Nigeria’s economy in 2020, consumer prices have been significantly pressured by the closure of land borders since August 2019 and compounded by the naira devaluation, removal of energy subsidies for a planned electricity tariff hike and the disruption of agriculture value chain due to the pandemic. Also, the stumpy oil prices and the spill over effects of COVID-19 have dragged economic performance as twin shocks which befell the nation’s economy, disrupting major economic activities as we look forward to a slight return to growth, expected to be driven by the non-oil sector in 2021; although, foreign exchange illiquidity and a continued partial lockdown would remain a challenge to recovery in many sectors.
Similarly, analysts at Financial Derivative Company (FDC), a research and financial advisory firm based in Lagos, in their 2021 projections stated that by the close of 2020, the economic indicator will average 12.98 per cent, thus rising from the 2019 average of 11.39 per cent. Also, they are of the view that in 2021, inflation will remain high as currency adjustment, price deregulation and forex restrictions for staple imports feed into consumer prices. Thus, it is expected that the headline index will rise further to 16 per cent in the first month of 2021.
Also, as reported by the Central bank of Nigeria in December 2020, in its Business Expectation Survey (BES), the expectations of Nigerian businesses on the rising rate of headline inflation, which reached its peak in about 36 months, will further exact pressures on the purchasing power of the local currency in the months of December 2020 and January 2021. They further expressed expectations of depreciation in the Naira due to higher demand for the greenback, as well as the persistent rise in the inflation levels.
What is more from the rising number?
In spite of the currently established comfort of inflation on the Nigerian economy, a cursory analysis from the data shows that the bureau’s observations single out above-average price increases for several items that reflect life under Covid-19, which includes medical services, hospital services, miscellaneous services relating to the dwelling; pharmaceutical products, paramedical and dental services.
Also, the report highlighted some items which reflect life in form of necessities and these include increases in the prices of passenger transport by air, shoes and other footwear, passenger transport by road, hairdressing salons and personal grooming establishments, repair of furniture, vehicle spare parts, motor cars, maintenance and repair of personal transport equipment, motorcycle and bicycles.
The falling purchasing power of the local currency may be further instigated due to the currency pressure emanating from the rising price levels in the economy. Thus, the value of the Nigerian naira will depreciate in exact inverse proportion to the increased inflation index.
What is more, is what investors might consider, in their investment in dollar-denominated assets, to be cautious against rising inflation due to the feedback effect from imported inflation, while it is by and large, widely felt that the CBN’s monetary policy committee (MPC) would have to perform some extraordinary actions if it is to vote for another rate cut, when it holds its first meeting for the year next week. This can be founded on the grounds that the drive to rein in inflation numbers back to single digit will be high on the priority list at the forthcoming meeting.