Nigerians paid less for consumer goods in January, here’s why

In November 2020, Bola Ige, a mother of three, wanted to buy a 50kg bag of local parboiled rice, a major staple food in Nigeria, ahead of the Chrisman’s season. At N28,000 per bag, she could not afford it. So, she bought a quarter of the intended quantity.

By January 2021, the family had exhausted the supply and upon returning to the market, she was surprised to find that the price of a 50kg bag of rice had come down to N22,000. A 50kg bag of foreign parboiled rice, which was sold for an average of N32,000 in November, now goes for N26,000.

This situation currently mirrors what is happening in the economy as analysts have noted that the re-opening of the Nigerian land borders with its West African neighbours after about 17 months of closure and limited consumer spend, may have been contributing factors to the moderation in Nigeria’s Consumer Prices Index (CPI), commonly known as inflation rate.

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According to data from the January 2021 inflation report by the National Bureau of Statistics (NBS), inflation increased but at a slow rate by 1.49 percentage points, lowest in four months to 16.47 percent in January 2021 from 15.75 percent in the previous month.

Food inflation, which contributes more than 50 percent to the headline inflation, also rose but slowed to 1.83 percentage points to 20.57 percent in January 2021 compared to 19.56 percent in December 2020. The percentage points are the lowest in five months. Core inflation stood at 11.85 percent from 11.37 percent in December.

Wale Olusi, head of research at United Capital plc, said the re-opening of the borders played a mild impact on the improvement of the prices of food.

“Apart from the borders, another contributing factor was the low activities and buying pressure of consumers that typically occurs every January,” Moses Ojo, chief economist/head, Investment Research, Pan African Capital Holdings Limited, said.

Economists call this the base effect, which refers to the impact of an increase in the price level (i.e. previous year’s inflation) over the corresponding rise in price levels in the current year (i.e., current inflation). If the inflation rate was low in the corresponding period of the last year, then even a small increase in the price index will give a high rate of inflation in the current year.

Nigeria closed its land borders in August 2019 to boost local production and curb smuggling of rice, but the decision only pushed prices upward as the gap that local production could not cover was passed on to the consumers in the form of high prices.

Before the borders were shut in August, the inflation rate stood at 11.08 percent, the lowest in over 2 years, but after it was shut inflation has been rising for 17 straight months since September 2019.

“It is moderating but I feel that we are yet to see the full impact of the re-opening,” Ayodeji Ebo, senior economist/head, research/strategy, Greenwich Merchant Bank, said.

On the outlook of inflation in the coming months, analysts are expecting the inflation rate to still maintain an upward territory but the pace of increase should drop.

“The slow pace still depends on a lot of things. For example, NNPC has not come out with the new pricing regime for Premium Motor Sprite (PMS). Based on market factors, we should be buying petrol at close to N200 now. So, if based on that, the increase in PMS would lead to higher transport cost, which will affect farm product in terms of high cost,” Omotola Abimbola, a macro and fixed income analyst at Lagos-based Chapel Hill Denham, said.

Omotola said, “If we see an uptick in the cost of PMS regime, that could represent a major upside risk to inflation, but if we don’t, I think the pace should subside. We might not see inflation dropping until the second half of the year.”