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Nigeria November Inflation - Inflation sustains sprint, rises to 14.89% y/y

Consumer prices sustained the inflationary pace in November, as headline inflation rose to a new 34-month high of 14.89% y/y (Vetiva: 14.86% y/y). We attribute this to underlying supply-side shocks from the continued closure of land borders, a weaker Naira and higher fuel prices. The hike in retail PMS pump price to ₦170 contributed to the build-up in headline inflation for the month, which rose by 1.60% m/m (Oct’20: 1.54%), its fastest in 42 months. The passthrough of higher fuel prices into transport costs elevated food inflation for the fifteenth consecutive month to 18.30% y/y (Oct’20: 17.37%), amid pre-existing border restrictions. On the flip side, core inflation moderated to 11.05% y/y (Oct’20: 11.14%).

Food inflation propelled by familiar levers Food prices have been hit on several fronts. With the border closure being a remote cause, dollar restrictions on food imports as well as pandemic-induced disruptions & missed planting seasons were immediate triggers to food inflation. Since the beginning of the year, both non-alcoholic and alcoholic segments of food inflation have recorded consistent y/y inflationary pressures except May’20 where restrictions on restaurant and bars slightly suppressed demand for alcoholic beverages. In the month of November, both segments recorded steeper increases with the non-alcoholic pack (Nov’20: 18.20% y/y) ahead of the alcoholic segment (Nov’20: 11.03% y/y) as supply-side shocks and structural changes upset food prices.

Could there be a respite to inflationary pressures? 2020 has indeed been a tough year for consumers and producers alike from the spillovers of border closures to VAT hike, COVID-related distortions, short-lived electricity tariff hikes and monthly petrol pump adjustments. For the first time since 2016, consumer prices are set to undergo 12 consecutive months of inflationary pressures in a given year. In both years, we witnessed adjustment in the exchange rates however, this year has been more peculiar, with the disruptions in the agricultural sector and removal of fuel subsidies.