Does Nigeria’s Inflation Slowdown Mean Falling Prices?
Does Nigeria’s Inflation Slowdown Mean Falling Prices? No, it’s the rate of increase in the average price level over a period of time. Better still, decline in purchasing power of Naira over the period. For some reasons that bookish analysts are trying to rigmarole, Nigeria’s condition is not at par with the definitions.
Since April, Nigeria’s headline inflation rate has been descending but no households’ goods items, including food price, is falling.
For now, prices of ‘everything’ has hit the rooftop, reducing consumption as households pro-rate their limited cash resources. The price of cooking gas, kerosene and diesel remain high. Yam tubers, cassava flour, and practically food items price are heavily priced.
House rent, building materials and transport costs –air and land have skyrocketed. Unfortunately, these prices are however unlikely to reverse. Groceries and various items needed for daily survival have jumped higher.
Despite the increased price level, Nigeria is planning to remove subsidy on petroleum fully in 2022 with anticipation that the pump price of PMS could hit N300 per litre.
“Its poor national statistics to say prices are falling in Nigeria”, large numbers of people MarketForces Africa speak with on Saturday lamented while some economists find ways to explain the difference.
Some learned Nigerians called the development “make-believe, pancake statistics– we need to go back to the drawing board by separating street data from official data”.
MarketForces Africa educated Nigerians on the street that in real term, prices may not have dropped in the real sense of it but when you consider a period of prosperity when things were not right, you tend to get better results – and that’s what appears to be happening.
However, the street appears to disagree, saying that is not a valid reason given the sensitivity of the information on overall costs and standard of living of the populace, according to Timothy Adesina, a Lagos-based education consultant.
In the marketplaces across the country, prices of goods and services have gone through the roof, Adesina said while noting that it is almost difficult for civil servants to breathe as both inflation and naira devaluation have reduced their spending capabilities.
“We link almost all Nigerian products to Naira rate in the foreign exchange market …and Naira has suffered a number of devaluation, while unemployment and inflation rate are at double digits high – It’s nonsense”, almost furious and raging Adesina told MarketForces Africa.
Meanwhile, Broadstreet analysts have projected that the headline inflation rate could close the year below 15%. Though, other estimates see the inflation rate for the year printing at 15% for December 2021.
There are downside risks, according to analysts notes reviewed by MarketForces Africa. The planned removal of subsidy, low harvest in the agricultural segment, insecurity and yet another possibility of naira devaluation were among the key risk factors declining inflation rate.
For the eight consecutive months, the Nigerian inflation rate continued on a downward trend as the country’s headline index for the month of November 2021 declined by 59 basis points to 15.40%, according to data released by the National Bureau of Statistics (NBS).
This was against a 15.99% inflation reading recorded in October 2021, marking 8-month of disinflation in the country which had earlier seen a 19-month consecutive rise in the consumer price index.
But, data from the NBS actually indicated that the headline index increased by 1.08% on a month-on-month basis in November, which is 10 percentage points higher than the 0.98% recorded in the previous month, as explained by PAC Capital analysts.
Analysts stated that the decline in the headline index could be attributed to the ample rainfall experienced this year, which culminated in bumper harvest and the resultant decline in food prices.
Specifically, the urban inflation rate fell by 60 basis points to 15.92% year-on-year in November 2021 from 16.52% reported in October 2021; while the rural inflation rate declined by 59 basis points to 14.89% in November from 15.48% year-on-year in October 2021.
The composite food index increased by 17.21% in November 2021 year-on-year. This is 113 basis points lower than the 18.34% recorded in October.
The rise in the food index was caused by the increase in prices of Food Products, Coffee, Tea and Cocoa, Milk, Cheese and Eggs, Bread and Cereals, Vegetables and Potatoes, Yam and other Tuber.
In addition, the core inflation, which excludes the prices of volatile agricultural produce, rose by 13.85% in November 2021, which is 61 basis points higher than the 13.24% reported in October 2021.
According to NBS, the highest increases were recorded in prices of Gas, Liquid fuel, Other services, Garments, Vehicle parts, Passenger transport by road, Non-durable household goods, Jewelry clocks and watches.
Others are Passenger transport by air, Pharmaceutical products, Appliances, articles and products for personal care, cleaning, repair and hire of clothing and Fuels and lubricants for personal transport equipment.
PAC Capital is expecting inflationary pressure to continue to ease in the short run on ample agricultural output this year supported by abundant rainfall.
However, increasing energy prices and transportations costs are major factors to watch as these may potentially drive inflationary pressure in the short to medium term. Also, increasing demand for goods and services during the yuletide may exert pressure on the headline index.
“We expect the headline CPI to rise by 1.10% month on month, with the base effect from the prior year translating to a 59 basis points moderation in a year on year inflation rate to 14.81% year on year in December”, Cordros Capital projected.
Analysts at the firm said the projection is hinged on festive-induced demand pressure of food items and an expected mild increase in energy prices amidst stable PMS prices.
In its market report, Afrinvest is also expecting headline inflation to further moderate on a year on year basis in December to 14.8% supported by a high base-year effect.
“Nonetheless, we still believe the protracted insecurity challenges, supply chain bottlenecks, and likely increase in power tariff are potential downside risks to this projection”, the investment banking firm stated in its note.
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