Headline inflation slows to 21.34% amid festive spending
Analysts pick strengthening naira, falling purchasing power as factors
Notwithstanding the Christmas seasonal impacts on prices, Nigeria’s headline inflation slowed mildly to 21.34 per cent, suggesting a peak could be on the horizon.
December Consumer Price Index (CPI) reading shows the slight improvement comes from 0.4 percentage point ease in the troubling food basket.
According to the data released by the National Bureau of Statistics (NBS), yesterday, year-on-year (y/y) food inflation climbed down from 24.13 per cent recorded in November to 23.75 per cent at the end of the year. But the month-on-month (m/m) change remains elevated at 1.89 per cent – 0.49 percentage points higher than the November figure.
A part of the gain in the food segment was wiped by a 0.25 percentage point uptick in the core inflation, which measures the real inflationary pressure. The core, a measure of other segments of less volatile items such as food, rose from 18.24 to 18.49 per cent y/y.
But the m/m movement, a more realistic measure of the current inflation character, slowed to 1.33 per cent (from 1.67 per cent recorded the previous month.
In Nigeria, December marks the beginning of harvest in many farming communities across the country. With a poor storage system, some farmers dump their produce, hence the price of food items are low.
NBS attributed the high m/m inflation to “the sharp increase in demand usually experienced during the festive season, increase in the cost of production such as an increase in energy cost, transportation cost, exchange and rate depreciation.”
Across all item price change, Bauchi 23.79 per cent), Kogi (23.35b per cent) and Anambra (23.13 per cent) led the y/y change, while Oyo (3.48 per cent), Abuja (3.05 per cent) and Sokoto (2.58 per cent) top the m/m change in general prices.
Y/y all item prices were at slowest pace in Taraba (18.98 per cent), Osun (19.09 (per cent) and Kwara (19.18 per cent). On M/m analysis, Ebonyi (0.11 per cent), Ekiti (0.68 per cent) and Nasarawa (0.7 per cent) recorded the slowest price change.
The 2023 elections are seen as a major variable that could trigger fresh inflation concern. Nigeria’s elections are highly monetised with efforts to end vote-buying stopping at the level of advocacy.
Analysts said that the slight drop in the headline inflation was expected given some obvious changes in some variables such as purchasing power.
The analysts who spoke in separate interviews said Nigerians have been having it really rough as the economy continues to shrink.
A consultant at the ECOWAS Common Investment Market, Prof. Jonathan Aremu, said if the people do not have money, they would not make purchases, which would naturally drive down prices.
“People do not have money so they probably did not buy at all, if they have no money to buy, they will not buy and sellers may be forced to drop their prices to at least make a sale.
“If the money available in the system goes down, fewer people will be available to patronise the market and that could force prices to come down. That is in line with the quantity theory of money,” he said.
Also reacting, Managing Director of Financial Derivatives Limited, Bismarck Rewane, said the figure aligned with the projection of his firm.
“The harvests are here, the floods have receded and the naira is appreciating at the foreign exchange market. You can also see that the price of diesel is coming down. So, the ease is expected,” he said.
On his part, the Chief Operating Officer, Value Investing Limited, Seye Adetunmbi, attributed the slowdown to a reduction in the purchasing power of consumers, rising desire to save, reduced government spending, the dwindling performance of the stock market and tightening monetary policy.
He said: “What is driving the decline in inflation will determine how long it will last and if it is sustainable to bring it as low as possible.
“Anything short of falling prices that happen naturally when the output of the economy grows consistently faster than the supply of circulating money, the reduction in inflation rate may not endure. Until the productive economy is entrenched, there is no cause for celebration yet.”
Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel said the inflation figures released by the NBS do not reflect the economic realities prevailing in the country,
He stated that he finds it difficult to believe that inflation numbers for December 2022 eased from 21.73% to 21.34%, and this is because within the intervening period when Nigerians experienced steep shortage and scarcity from distortions in subsidy pricing mechanism to offtakers at depots due to increased landing costs.
Emmanuel held that it was important for the Federal Government to understand that tackling cost-push and demand-pull inflationary buffers will first require a high level of transparency and accountability to the real state of things, adding that this is the time for the Central Bank to re-focus on its policy mandate of maintaining price stability.
In his reaction, a Senior Economist with SPM Professionals, Paul Alaje said the value of liquid money is fast disappearing both in cash and the banks.
Prof Sheriffdeen Tella said the inflation figures released by the NBS were expected.
The erudite Professor of Economics from the Olabisi Onabanjo University, Ago Iwoyi said, Inflation was expected because the demand for goods and services in December, 2022 is far higher than that of 2021’’ following population increase in recent times.