Freshly baked December inflation report showed that headline inflation rate further increased to 11.44% year-on-year (from 11.28% in November 2018) in line with our expectation. The further rise in annual inflation rate was driven by higher prices of food, especially in Abuja, Bayelsa and Nasarawa States – food inflation in the respective states increased to 16.50%, 16.23% and 16.15% in December 2018.
Hence, the pressure on general price level of food persisted y-o-y to 13.56% (higher than 13.30% in November), partly due to the flood and security challenges experienced in some parts of the country in 2018. However, core inflation rate further declined on an annual basis to 9.77% (from 9.79% in Novemeber).
This was partly driven by y-o-y decrease in the costs of transport (-0.21%) despite the y-o-y rise in clothing & footwear (+0.14%) and energy cost (+0.09%).
Also, y-o-y change in price level for imported food increased to 15.66% from 15.55% amid yearly average depreciation of the Naira against USD (FX rate fell y-o-y to N340.16) at the interbank FX market as well as y-o-y increase in global commodity prices: such as wheat (rose 14.77% to USD211.28/MT). Further analysis revealed that Inflation rate in the urban and rural areas rose y-o-y to 11.73% (from 11.61%) and 11.18% (from 10.99%) in Decemeber 2018 respectively.
“We expect further upward pressure on general price level of goods and services in January 2019 as Presidential election campaigns intensify”.
Inflation has been rising steadily since July, increasing chances that the central bank could tighten interest rates at its first meeting of 2019 next week. The price index, which peaked at 18.7 percent in January last year, has been in double digits for three years.
In November, Governor Godwin Emefiele said he expected the central bank’s tight monetary policy stance to continue in 2019, due to the inflation and exchange rate outlooks. He said the short-term outlook for the economy was good and that the country was open for foreign investors.
The bank has kept benchmark rates tight at 14 percent for more than a year to curb inflation, support the naira and attract foreign investors into the debt market.
Nigerians will vote on Feb. 16 in a presidential election. Incumbent Muhammadu Buhari is seeking a second term, campaigning on his anti-corruption record. Buhari’s record on the economy will also be closely scrutinised.
Nigeria emerged from its first recession in 25 years in 2017 but growth remains fragile, although higher oil prices and recent debt sales have helped the continent’s biggest crude producer to accrue billions of dollars in foreign reserves.