The latest jump in Nigerian inflation, to 15.8% y/y in December, on the back of mounting food price pressures will probably take monetary easing off the table in the near term.
Inflation through the roof, monetary easing off the cards for now
- The latest jump in Nigerian inflation, to 15.8% y/y in December, on the back of mounting food price pressures will probably take monetary easing off the table in the near term.
- Figures released today showed that inflation in Nigeria shot up from 14.9% y/y in November to 15.8% y/y in December, the highest since late 2017. (See Chart 1.) The outturn was above our estimate of 15.3% y/y as well as the Bloomberg consensus of 15.5% y/y.
- Food price pressures continued to surge. Food inflation jumped once again, from 18.3% y/y in November to 19.4% y/y in December, accounting for 0.6%-pts of the rise in the headline rate. Ongoing security problems probably disrupted the food supply chain, and a weaker currency coupled with FX restrictions appear to have pushed up the price of imported food items.
- That said, inflation rose in virtually all of the major price categories. (See Table 1.) Petrol prices seem to be responding more closely to global developments following the administration’s steps to liberalise fuel pricing. This has pushed up transport inflation, which hit 13.0% y/y in December. Housing inflation picked up too. And core inflation, at 11.4% y/y, reached close to a three year high.
- There seems to be no end in sight for rises in the headline inflation rate. Food price pressures are likely to take some time to ease. Currency weakness and FX restrictions will continue to put upward pressure on inflation of imported goods. And the rebound in global oil prices will keep transport inflation high.
- The latest jump in inflation will probably take additional monetary easing off the table in the near term. Once the headline rate starts to drop back later this year, policymakers may want to lend more support to the economy by cutting rates. The recovery is coming under pressure with a second wave of COVID-19 showing no signs of abating and vaccine rollout is likely to be slow.
Chart 1: Consumer Prices & Key Policy Rate
Sources: Nigerian Bureau of Statistics, Central Bank of Nigeria, Capital Economics
Table 1: Nigeria Consumer Prices
Sources: Nigerian Bureau of Statistics. (*) Includes non-alcoholic beverages
Virág Fórizs, Africa Economist, email@example.com