Hello I think I last blogged in 3000BC, I’m sorry and I apologize. I was taking some exams which required unrivalled attention hence I had to suspend blogging on economic issues. With that completed I can return to trying to communicate my perception of economic issues affecting Nigeria.
Yes so after nearly four and half years, Nigeria’s headline inflation returned to single digit levels again (bar a brief 2-month flirtation in 2011). As I had anticipated during my 2012 inflation review blog post, this is however largely down to significant base effects from 2012. In 2012, the 49% increase in the pump price of fuel to N97/litre drove a 2-3 percentage point increase in headline inflation in the first half of 2012 due to the transmission of these shocks to supply via transportation. As this is a one-off event, the 2013 numbers would generally compress under the weight of the larger denominator from 2012.
A brief digression to initiate the uninitiated – the inflation rate is the percentage change in the consumer price index (CPI) – an index of prices constructed using the Laspeyres price index approach of a select list of items that curiously includes narcotics. (Yes I flipped when I saw that too). There are other measures of inflation maintained elsewhere for instance in India, the wholesale price index is used and some countries use the producer price index.
Thus, the CPI index numbers for 2012 were generally inflated on account of what accountants would refer to as an extraordinary event – the partial removal of subsidy. Thus to sustain those rates in 2013, we would need an event of equal magnitude barring which the higher base of 2012 would work to compress the 2013 reading to much lower levels.
Thus commencing in January, we witnessed a 300bps contraction in headline inflation to 9% – which has been the average thus far in 2013. The May numbers released over the weekend are of similar magnitude.
Figure 1: Headline, Food and Core Inflation
Source: National Bureau of Statistics (NBS), Central Bank of Nigeria
The outlook for the rest of the year is still largely for lower inflation on account of the subsidy related base effects which will taper off in July when we expect lean season pressures – price increases on account of agricultural produce being out of harvest. However on account of the floods in 2012 which also drove increases in food prices as it occurred during the harvest season when prices of food items fall under fresh supplies.
On this issue, although, the overall headline figures have been lower, this has generally masked consistent increases reported by the NBS in the prices of grains like maize, millet and sorghum and tubers like yam and cassava. I suspect these latent pressures will surface in CPI numbers post-July 2013 before retreating during the harvest months starting September. My outlook is for 2013 mean inflation of 9.8% (+/- 20bps)
That will be all, Good to be back then my next blog post would review Q1 2013 GDP numbers.