FREE

March 2022 Inflation review - Consumer prices bow to fuel shortages

Consumer prices bow to fuel shortages

According to the National Bureau of Statistics (NBS), headline inflation increased for the second time in a row. This is evident in a higher monthly headline inflation outcome of 1.74% m/m in March vis-à-vis a 1.63% m/m figure in February, reflecting the passthrough of fuel shortages and high diesel prices.

 

On a year-on-year basis, headline inflation increased to 15.92% y/y in March, 9 basis points (bps) above our in-house estimate (Vetiva: 15.83% y/y).  This contradicts the consensus expectation that headline inflation should have fallen on account of high base effects (Bloomberg consensus; 15.66% y/y). We note that although the average price of PMS was slightly lower in the current year (March 2022: ₦172.0/litre) than a year earlier (March 2021: ₦172.67/litre), the factors which informed higher inflation in 2021 (hoarding and an artificial food blockade) were resolved more quickly than the current scenario, which has persisted for some time.

 

In March 2022, consumer prices reeled from off-spec PMS imports, ensuing fuel shortages and high diesel prices, which was compounded by power blackouts. The lag in restoring normalcy, which coincides with a period of rising oil prices, was the major cause of the higher inflation outcome.

 

Energy crisis induces higher food inflation

Food inflation nudged 9bps higher to 17.20% y/y (Feb’22: 17.11% y/y). We attribute this to demand frontload ahead of the festive season, as well as the passthrough effect of high energy prices. Food is widely transported by diesel-powered trucks, and with diesel prices at an all-time high, it is bound to affect the market prices of such products.

 

Core inflation remains rangebound due to high base effect

Core inflation, which captures non-farm produce, fell slightly to 13.91% y/y, down 10bps from the previous month (Feb’22: 14.01%). Core inflation has remained within a tight range of 13% - 14% within the past 11 months, reinforcing our view that there is a tussle between base effects, foreign exchange, and energy pressures. In addition, we note that despite the slight decline, all the constituents of non-food inflation (excluding health) recorded higher pressures on a month-on-month basis, reflecting the passthrough of the PMS shock and elevated energy prices. The highest pressures were observed in the prices of clothing and footwear items (16.08% y/y), transport (15.37% y/y), household furnishings and equipment maintenance (15.07% y/y), alongside others.