The official consumer price index (CPI) report for the month of November has been released on Thursday, December 15 2022, by the National Bureau of Statistics. Headline inflation in Nigeria rose to 21.47% in November 2022 from 21.09% recorded in the previous month. This is the 10th consecutive monthly increase and the highest inflation rate since September 2005. The hotter-than[1]expected inflation rate in November was largely driven by exchange rate pass-through effect and higher cost of production due to astronomical rise in energy costs. Another major culprit for the 17-year high November CPI is the flood effect, which ravaged about 31 states. The CPI inflation is also indicative of an increase in economic activity in November as businesses front-load their purchases ahead of the Christmas season. In November, Nigeria's Purchasing Managers' Index rose to 54.30 points from 53.60 points in the month of October, indicating improvement in business confidence.

The CPI report shows that food inflation rose to 24.13% from 23.72% in October. The increase was mainly due to flood-induced supply disruption, high cost of imported food items, a decline in food production due to insecurity, and a higher cost of logistics. These factors muted the impact of the harvest effect on food inflation. Similarly, core inflation edged up to 18.24% from 17.76% in the previous month. The sustained increase in core inflation was buoyed by currency weakness, rising logistics costs, and a high cost of production fueled by rising energy costs. 

In the same vein, month-on-month inflation climbed by 0.15% to 1.39% from 1.24% in October. Also, the monthly core inflation rate rose by 0.74% to 1.67% from 0.93% in the previous month. 

Peak Inflation: Are We Already There? 

Global inflationary pressures surged in 2022 following Russia’s invasion of Ukraine and the worsening of supply chain disruptions. This resulted in higher food and energy prices in both advanced and emerging economies, which are heavily reliant on imports. However, global commodity prices have moderated from the record highs reached in the aftermath of the war. The global food price declined by 0.2% for the eighth straight month, to 135.7 points in November from 135.9 points in October, though it still remains above the pre-Ukraine invasion levels. Given the moderation of global prices, inflation rates in some advanced and emerging countries are declining. The annual inflation rate in the US fell for the fifth straight month to 7.1% in November, the lowest level since December 2021, due to a moderation in energy costs. In the Eurozone, inflation slowed to 10% in November from 10.6% in October as food and energy prices fell. This was the first decline in inflation in the region since June 2021. In the African region, some countries are also experiencing lower inflationary pressures. South Africa's annual inflation rate eased to 7.4% in November from 7.6% in the prior month, the lowest reading since June 2022. Mozambique’s inflation rate also eased for the third straight month to 11.25% in November from 11.83% in the previous month. Additionally, headline inflation in Botswana fell for the second consecutive month to 13.1% in October from 13.8% in the prior month after reaching a 14-year high of 14.6% in the month of August. 

In Nigeria, however, the headline inflation rate has maintained an upward trend for the tenth straight month in November. Inflationary pressures in the country have remained elevated due to the persistent currency crisis, the recent devastating flooding, and fiscal deficit monetization by the Federal Government of Nigeria. Preceding the impact of the flood, however, month-on-month inflation in the country was on a steady decline from 1.82% in July to 1.24% in October before rising to 1.39% in November. Although the CBN has adopted restrictive measures since May 2022, the money supply and the CBN balance sheet have continued to balloon. Thus, as long as the nation’s legacy problems persist, it is doubtful that inflation will peak in Nigeria in 2022. 

Breakdown of inflation data 

Food sub-index 

Food inflation (year-on-year) increased by 0.41% to 24.13% in November 2022 from 23.72.21% in October. This was caused by increases in the prices of commodities like bread and cereals, potatoes, yams, oil and fat. Also, month-on[1]month food inflation rose by 0.71% to 1.40% in November from 1.23% in October. 

Core sub-index 

Core inflation, which is inflation less seasonality, maintained its upward trend at 18.24% from 17.76% in October. In the same vein, month-on[1]month core inflation rose to 1.67% from 0.93% in the prior month. The increase was largely attributed to higher liquid fuel, gas, passenger transport (air) and vehicle spare parts prices.

Urban-rural inflation record significant increase 

The urban and rural inflation rates both recorded increases in the month of November. On an annual basis, urban inflation increased by 6.17% to 22.09%, while it rose by 0.16% to 1.50% on a monthly basis. The rural sub-index saw an increase of 5.99% to 20.88%, while the monthly sub-index rose by 0.14% to 1.30%. 

State-by-state inflation 

A breakdown of the state of inflation at sub[1]national level shows that Ebonyi state topped the table with a headline inflation rate of 26.11%. Other high-inflation states include Kogi (25.64%) and Rivers (24.45%). Kaduna, Sokoto, and Cross River states recorded the slowest rise in consumer prices on a year-on-year basis in November. 

Sub-Sahara Africa 

Most of the Sub-Saharan African countries under our review have witnessed a slowdown in inflation in November, except for Nigeria, Ghana and Zambia. This suggests that the upward trend in Nigeria’s inflation rate is mainly due to exchange rate volatility, higher cost of logistics and other structural challenges.

Outlook

High festive demand and campaign spending will put pressure on prices in the coming months. We also expect fiscal deficit monetization to continue in the near term as FGN struggles to finance the 2022 budget deficit amidst dwindling revenue. However, squeezed consumer income and consumer price resistance could moderate the effect of increased demand on prices. We expect inflation to inch up further in December and to remain elevated in the first quarter of 2023. Also, the MPC may continue with its aggressive monetary tightening stance during its next meeting in January 2023 as it battles nearly two-decade high inflation.