February 2022 Inflation review - Fuel scarcity upsets consumer prices
Fuel scarcity upsets consumer prices
Nigeria’s headline inflation rose to 15.70% y/y in February (Vetiva: 15.60% y/y), 10bps higher than January (15.60% y/y) and Bloomberg consensus estimates (15.59% y/y). We believe the uptick was driven by fuel scarcity, resulting from the time lag in replacing off-spec Premium Motor Spirit (PMS) with clean PMS. While the retention of fuel subsidies continues to shield consumers from the impact of higher crude oil prices, the rationing of clean PMS and ensuing queues spurred increased black-market activities and pricing, higher transport costs, and higher commodity prices. Thus, headline inflation rose at an accelerated pace of 1.63% on a m/m basis (January: 1.47% m/m).
Core inflation reels from high energy prices
Core inflation, on the other hand, increased to a 5-year high of 14.01% y/y (Jan’22: 13.87% y/y). The combination of scarce PMS and surging oil prices, which affected the prices of deregulated petroleum products such as diesel and aviation fuel, increased the cost of production in the period. As such, we witnessed a broad-based acceleration in energy, clothing, health, transport, communication, and recreation segments. This underscores the impact of higher energy prices on commodity prices.
Fuel scarcity slows down the pace of food disinflation
Food inflation, on the other hand, slowed to 17.11% y/y, which is slightly lower than January (17.13% y/y). On a month-on-month basis, however, food inflation rose at a faster pace (Feb’22: 1.87% m/m, Jan’22: 1.62% m/m), reflecting the passthrough effect of high transport costs to food prices. Furthermore, because agricultural goods are mostly transported by diesel-powered trucks, the increased cost of transportation was exacerbated by higher diesel prices. Staple items such as bread, cereals, and oils, continue to reel from global supply chain challenges and restricted FX access. Imported food also inflation increased 8bps y/y to 17.48% y/y, reflecting the passthrough effect of a weaker Naira.
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