April 2022 Inflation review - Energy crisis sends inflation to a 7-month high
Energy crisis sends inflation to a 7-month high
Headline inflation surprised to the upside in April, surging to 16.82% y/y, above March inflation outcome (15.92% y/y) and Bloomberg Consensus’ estimate of 16.4% y/y (Vetiva: 16.0% y/y). For the third month running, headline inflation has increased at a faster pace (Apr’22: 1.76% m/m), indicating the lingering impact of fuel shortages, high diesel prices, and insecurity on consumer prices.
Food inflation surged to 18.37% y/y in April amid demand-side pressure from religious festivities – Ramadan and Easter. We believe high cost of energy was the major driver of the uptick in food inflation. Available data from the bureau confirms that diesel prices have doubled over the past one year. This drove higher food inflation across 35 states of the federation, including the Federal Capital Territory (FCT). The transport passthrough masked the cooling impact of ongoing dry harvests in some northern markets. Core inflation, on the other hand, which has remained sticky within the past 12 months, rose to 14.18% y/y in April (Mar’22; 13.91% y/y).
Can border reopening provide respite?
On the 22nd of April 2022, the Federal Government reopened four additional land borders - Idiroko (Ogun), Jibiya (Kastina), Kamba (Kebbi), and Ikom (Cross Rivers) borders. This reopening is happening 16 months after an earlier reopening exercise. In December 2020, the FG ordered the reopening of the Seme (Lagos), Maigatari (Jigawa), Illela (Sokoto), and Mfum (Cross River) borders.
We recall that the current trend of high and rising inflation began in September 2019, a month after the closure of all land borders. While the land borders were closed to curb smuggling, the food supply gap further expanded amid domestic supply-side hostilities - climate change, insecurity, COVID-19, and devaluation. We note that the impact of previous re-openings on inflation was muted as the ban on food imports (especially rice) remained in place. Thus, should the authorities fully reopen the borders, this could help moderate inflation significantly.
Another fuel shock looms
In the meantime, however, the country is still faced with threats of higher energy-induced inflation as the Independent Petroleum Marketers Association of Nigeria (IPMAN) has warned that the refusal of relevant agencies to pay outstanding debts could lead to another fuel crisis. Should this risk crystallize, a new wave of fuel scarcity could boomerang on consumer prices. This risk could counter the soothing effects of full border reopening. Thus, we expect headline inflation to rise to 17.44% y/y in May’22. We also raise our full-year estimate for FY’22 inflation by 200bps to 17.0% y/y (2021: 16.98% y/y).
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