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Rising Inflation Expectations as NBS is Expected to Release the January 2024 Inflation Report



January Inflation

Today, we take a closer look at some of the drivers of Nigeria’s headline inflation, following our initial commentary on December’s headline reading. We see from the National Bureau of Statistics (NBS) data that the headline reading increased by 72bps y/y in December ’23 to 28.92% y/y, a modest retreat compared to an acceleration of 87bps y/y to 28.20% y/y in November ’23. Nigeria’s headline inflation has been on an upward trend in recent months, primarily driven by rising food and core inflation.

Food prices surged again by 109bps y/y to 33.93% y/y, up from 32.84% y/y in November. Food accounts for about 51% of Nigeria’s inflation basket and has been the primary driver of the headline rate. On a m/m basis, the food index increased by 30bps m/m to 2.72% m/m.

In the selected food price watch report for December, a separate report by the NBS, we see that all 43 food items surveyed reported y/y price increases.

Structural supply-side constraints, a combination of insecurity and conflict, and distribution challenges continue to exert upward pressure on food inflation.

Fx liquidity constraints, which have resulted in limited Fx availability for food importation, have also contributed to rising food prices.

For instance, imported food inflation has remained elevated, steadily rising since Sep ’19. The latest reading showed that it accelerated by 115bps y/y to 23.74% y/y.

Similarly, core inflation has continued to trend upward. Dec ‘23 inflation report showed an increase of 68bps y/y to 23.06% y/y.

According to the Premium Motor Spirit (PMS) price watch, the average price paid by consumers for PMS increased by 226% y/y and 4% m/m to NGN671.9 per litre in December ’23.

Similarly, the NBS report on Liquefied Petroleum Gas (LPG) prices reveals that the average cost of refilling a 12.5kg cylinder increased by 3% m/m and by 12% y/y to an average of NGN11,510 in Dec ‘23.

The persistent rise in LPG prices is due to supply shortages caused by Nigeria’s dependency on LPG imports, which is exacerbated by the prevailing fx volatility.

With respect to the prices of other deregulated fuels, automotive gas oil (diesel), and household kerosene increased by 38% y/y and 23% y/y to NGN1,126.7/litre and NGN1,362.3/litre, respectively.

The NBS is expected to release the Jan ’24 inflation report tomorrow. Given that risks to inflation remain tilted to the downside, we expect the report to show an upward trend in the headline reading

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