For first time in 2yrs, Nigeria’s inflation rate slows for second straight month
Nigeria’s inflation rate surprisingly slowed to 17.93% in May 2021 from 18.12% in April 2021 beating most analysts’ forecasts. The slowdown however doesn’t provide much relief to Nigerians reeling from an inflation rate that remains double the Central Bank’s preferred level.
Analysts had projected that Nigeria’s inflation rate would resume its 21-month upward rise into May, but the rate slowed for the second successive month in May, marking the first time that has happened in almost two years.
The consensus view of economists compiled by Bloomberg was an inflation rate of 18.8%. The variance between forecasts and the published data can be explained by inflation expectations and the possible underestimation of consumer resistance to price increases. Most analyst expectations were anchored on the view that the major causes of inflation remain entrenched.
It is worth mentioning that a slowdown in inflation does not necessarily imply that prices are falling. It simply means that commodity prices are increasing albeit at a slower pace. Of all the inflation sub-indices, only core inflation increased. All non-food items increased with the highest increases were recorded in prices of Pharmaceutical products, Garments, Shoes and other footwear, Hairdressing salons and personal grooming establishments, Furniture and furnishing, Carpet and other floor covering.
Analysts have been skeptical with this consecutive decline in inflation rate, however, a Year-on-Year comparison sheds some light on this trend. The ‘Panic Buying’ which ensued as a result of the pandemic, drove the rate of increase in inflation last year higher than the current stability which the economy currently experiences. Thus, when the rate of increase is compared on a Year-on-Year basis, the trend (slowed rate) begins to reflect in the data.
On month-on-month basis, the Headline index increased by 1.01 percent in May 2021. This is 0.04 percentage points higher than the rate recorded in April 2021 (0.97 percent).
The unexpected drop in the annual price level can be partly attributed to the decline in the food sub-index. Food inflation moderated to 22.28%in May from 22.78% in April.
This rise in the food index was caused by increases in prices of Bread, Cereals, Milk, Cheese, Eggs, Fish, Soft drinks, Coffee, Tea and Cocoa, Fruits, Meat, Oils and fats and Vegetables.
A troubling trend however is that food inflation is falling at a time when global food prices are rising. The global food price index increased for the 11th consecutive month to 120.9 points in April, 1.7% higher than March’s figure (118.8 points). This was driven by an increase in the sugar, oil and meat price indices.
On month-on-month basis, the food sub-index increased by 1.05 percent in May 2021, up by 0.06 percent points from 0.99 percent recorded in April 2021.
The average annual rate of change of the Food sub-index for the twelve-month period ending May 2021 over the previous twelve-month average was 19.18 percent, 0.60 percent points from the average annual rate of change recorded in April 2021 (18.58) percent.
In May 2021, food inflation on a year on year basis was highest in Kogi (32.82%), Kwara (26.02%) and Enugu (25.43%), while Akwa Ibom (20.06%), Bauchi (18.65%) and Abuja (16.91%) recorded the slowest rise in year on year inflation.
On month on month basis however, May 2021 food inflation was highest in Kogi (3.11%), Ogun (2.89%) and Anambra (2.37%), while Edo, Sokoto and Ekiti recorded price deflation or negative inflation (general decrease in the general price level of food or a negative food inflation rate).
The “All items less farm produce” or Core inflation, which excludes the prices of volatile agricultural produce stood at 13.15 percent in May 2021, up by 0.41 percent when compared with 12.74 percent recorded in April 2021.
The average 12-month annual rate of change of the index was 11.50 percent for the twelve-month period ending May 2021; this is 0.25 percent points higher than 11.25 percent recorded in April 2021.
On month-on-month basis, the core sub-index increased by 1.24 percent in May 2021. This was up by 0.25 percent when compared with 0.99 percent recorded in April 2021.
The urban inflation rate increased by 18.51 percent (year-on-year) in May 2021 from 18.68 percent recorded in April 2021, while the rural inflation rate increased by 17.36 percent in May 2021 from 17.57 percent in April 2021.
On a month-on-month basis, the urban index rose by 1.04 percent in May 2021, up by 0.05 percentage points compared to the rate recorded in April 2021 (0.99), while the rural index rose by 0.98 percent in May 2021, up by 0.03 points compared to the rate that was recorded in April 2021 (0.95 percent).
The corresponding twelve-month year-on-year average percentage change for the urban index is 16.09 percent in May 2021. This is higher than 15.63 percent reported in April 2021, while the corresponding rural inflation rate in May 2021 is 14.94 percent compared to 14.48 percent recorded in April 2021.
NBS data also indicated that in May 2021, all items inflation on year on year basis was highest in Kogi (25.13%), Bauchi (23.02%) and Sokoto (20.11%), while Katsina (15.69%), Imo (15.52%) and Delta (14.85%) recorded the slowest rise in headline Year on Year inflation.
On month on month basis however, May 2021 all items inflation was highest in Kogi (2.22%), Ogun (2.17%) and Cross River (2.07%), while Ekiti (0.02%) recorded the slowest rise in headline month on month with River and Sokoto recording price deflation or negative inflation (general decrease in the general price level of food or a negative food inflation rate).
All eyes will now be on the MPC at their meeting next week to see their reaction to this unexpected consecutive drop in inflation rate. However, the current inflationary pressure induces macroeconomic instability and also negatively affects the welfare of households and fixed income earners. CBN’s in-house estimates show that headline inflation will remain above 17.9% in 2021.