Comercio Partners: Inflation rate nudged upwards in December 2021

Inflation Report – December 2021

Headline inflation grew by 15.63% YoY in December 2021; 0.23% higher than 15.40% recorded in
November 2021.
Food inflation inched up by 17.37% YoY in December 2021; 0.16% higher than 17.21% recorded in
November 2021.
Core inflation stood at 13.87% YoY in December 2021; 0.2% higher than 13.85% recorded in
November 2021.

The uptick in yearly headline inflation essentially halts the trend of deceleration seen in the preceding eight readings, and the renewed increase in headline inflation rode on the back the price acceleration witnessed in both the food and core subindexes.

Headline Inflation

In December 2021, headline inflation rose by 1.82% MoM, representing a 0.74% increase from the rate of 1.08% that was recorded in the previous month. The yearly average rate rose to 16.95%, 0.03% lower than 16.98% recorded in the previous month. The sharp jump in monthly headline inflation was sponsored by the upsurge in prices of staple food items relative to the preceding month.

Food Inflation

The food subindex rose by 2.19% MoM, reflecting a 1.12% increase from the rate of 1.07% recorded in November 2021. The yearly average rate rose to 20.40%, 0.22% lower than 20.62% recorded in the preceding month. The food subindex witnessed renewed pressure due to the characteristic year end spending on food items.

Core Inflation

Core inflation stood at 1.12% MoM, down 0.13% from 1.26% recorded in November 2021. The yearly average rate also rose to 13.16% last month, 0.21% higher than 12.96% recorded in the preceding month. The highest increases were recorded in the prices of gas, liquid fuel, wine, narcotics, tobacco, spirit, repair and hire of clothing, garments, shoes and other foot wear and clothing materials, other articles of clothing and clothing accessories.

Analyst’s Comments

Ending the year on a rocky note, headline inflation reversed its trend of moderation, which lasted for eight consecutive months, in December 2021. The yearly headline rate ceased to moderate, on the back of an uptick in staple food prices in a magnitude that was more significant than the typical seasonal price uptrend affiliated with the December festive season. Monthly food prices for December rose at the fastest pace in over four years, as existing inflationary drivers like FX scarcity, Naira depreciation and supply disruptions were exacerbated by the festive induced upsurge in food demand. We note the disturbing uptrend in the prices of imported foods, and alcoholic beverage, tobacco and kola, as this segments inched up by 6bps and 53bps to 17.34% and 13.68% year-on-year, respectively, in the review month. Elsewhere, monthly core inflation nudged southwards in December, due to reduced Covid-19 related disturbances that had created a pressure on prices in the transportation and health spaces.

Despite the reversal in the trend of inflation, we expect both headline and food indexes to resume the downward trend, drawing support from an elevated base period in the first quarter of the year. Beyond this period, the impact of the base effect should become less material, and the subpar planting season in 2021 should start to adversely impact food prices as we move further into the year. Also, energy prices is expected to constitute a major upside risk to inflation in 2022, given expectations of elevated prices in the international oil market and an imminent deregulation of the downstream oil sector by mid-year.

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