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Despite the consistent rise in food items, electricity, gas and other household goods, Nigeria's Inflation rate sustained a downward trend in October 2021. The rate fell for the seventh consecutive month as the Consumer Price Index (CPI) rose by 15.99% Y-o-Y against 16.63% in September.  

October's inflation figure represents a 63.1-basis point drop in inflation compared to figures posted in September. According to local economists, the rate at which prices of food and other items have risen since October last year far exceeds the figure produced by the National Bureau of Statistics (NBS) computations. 

Although the NBS undertakes a more statistically complex procedure to track changes in general prices, Nigerians are bothered about statistical accuracy. Some analysts have expressed skepticism about how much the current basket of goods sampled by the NBS reflects the regular shopping list of the average Nigerian household.

NBS recognizes the need to select the right set of goods, and it admits the same in the methodology section of its recent inflation report for October 2021: "Key in the construction of the price index is the selection of the market basket of goods and services." The Bureau also stated that "The market items currently comprise of 740 goods."

NBS Data Fails to Tally with Consumers Shopping List

Apart from the choice of items that the price index measures, analysts have also queried the conduct of the actual price surveys. Are the respondents chosen transparently and randomly?  According to the NBS: "The first stage in the calculation of the CPI is the collection of prices on each item (740 goods and services) from outlets in each sector (rural or urban) for each state." for which purpose, "every month, 10,534 informants spread across the country provide price data for the computation of the CPI."

Unpacking the latest Inflation Data

Headline Inflation

Headline inflation in October came in at 15.99%, suggesting that the Consumer Price Index increased by 15.99% between October 2020 and October 2021. This is lower than 16.63%- the annual rate of general prices in September 2021 (see Chart 1).

 Chart 1: Nigeria's Headline Inflation Rate Sept 2019 - Oct 2021 (%)

Source: NBS, Proshare Research

 Over the 31 days in October 2021, the general price level rose by 0.98%- the slowest monthly rise since July this year. This suggests that prices in October were on average 0.98% higher than they were in September. The month-on-month inflation rate in September was 1.0%. From the new data, the twelve-month inflation average for October was 16.96%, up 13 basis points from 16.83% in the previous.

Core Inflation

Meanwhile, core inflation last month increased by 50 basis points from 13.74% in September 2021 to 13.24%.  This implies that prices of items in the core sub-index were 13.74% higher in October 2021 than they were in the corresponding period of 2020. The recent figure suggests that core inflation which followed an upward trend last month declined inched downward, signalling lower long-term prices (see Chart 2 below).

Chart 2: Nigeria's Core Inflation Rate Sept 2019 - Oct 2021 (%)

Source: NBS, Proshare Research

Meanwhile, on a month-on-month basis, prices of items in the core sub-index rose by 0.8% - a somewhat lower rate than the 1.24% rate at which prices of non-farm items rose in September. The twelve-month average of core inflation had increased from 12.55% as of the end of September to 12.73% at the end of October. The items that saw the highest increases in the core sub-index include hospital services, shoes and other footwear, catering services and household and textiles

Food Inflation

Year-on-year food inflation moderated by 1.23 percentage points from 19.57% in September to settle at 18.34% in October, suggesting that the price paid by Nigerians for food in October 2021 is on average 18.34% higher than the price paid in the corresponding period of last year. On a month-on-month basis, food prices rose by 0.91% compared to food prices in September 2021.  (See Chart 3 below).

 Chart 3: Nigeria's Food Inflation Rate Sept 2019 - Oct 2021 (%)

Source: NBS, Proshare Research

As of the end of October, the twelve-month average of food inflation increased from 20.71% in September to 20.75% in October. The specific food items that accounted the most for the rise in the food sub-index are oils and fats, Milk, Cheese and Eggs, Bread and Cereals and Potatoes, Yam and other Tuber.

 Localizing Inflation

Bauchi state recorded the highest annual inflation rate at the sub-national level. Its CPI rose by 19.63%, higher than the 18.99% inflation rate recorded by the north-eastern state last month when it ranked the third most inflationary state behind Kogi and Gombe states (see Chart 4 below).

Chart 4: Headline CPI for States Oct 2020-Oct 2021

Source: NBS, Proshare Research

Meanwhile, the urban index rose by 16.52% year on year, implying that urban centres increased the overall index. Rural CPI, on the other hand, rose by 15.48%, which is lower than the inflation rate of the entire country, which was 15.99%.

Higher electricity tariff inflation outlook

When the Monetary Policy Committee (MPC) meets between November 22 -23, the expectation is that it stays centrist given that the inflation rate has declined by an average of 50basis point each month since the Committee's last meeting in September remains high at 15.99%. Given that GDP growth in Q2 2021 gained on the back of significant government spending, a cut back on expansionary fiscal policy can hurt growth.

Therefore, to address the problem of high inflation, the government needs to attend to the major structural drivers of Inflation which feed into the overall cost of production, namely the high level of Insecurity, cargo clearing logistics at the ports, and the inefficient and expensive transportation system. Likewise, the CBN needs to consider removing essential items from the fx restriction to reduce the landing cot of the items.  Analysts have also noted that the size of the CBN's ways and means of financing needs to be reduced to statutory levels. According to rating agencies such as Moody's and Fitch, the unconventional form of government borrowing also accounts for the country's high inflation.

With the planned removal of subsidies and a review of power tariffs which could see Nigerians pay more for electricity by December 2021, some palliative measures need to be put in place to cushion the inflationary effect on households and small businesses. The emerging economic trends such mixed realities for Nigeria's troubling inflation numbers (see illustration 1 below)

Illustration 1 The Mixed Reality of Nigeria's Inflation