Headline inflation bucks its two month decline in September

The National Bureau of Statistics published its Consumer Price Index (CPI) and inflation report for September today. As expected, headline inflation reversed its two-month downward trend, climbing by 55bps to 32.7% in September from 32.15% in August. This increase was primarily driven by food inflation, which rose by 0.25% to 37.77% in September. The insecurity and flooding, particularly in the Northeastern states, have exacerbated the country’s food security crisis. As reported by the Food and Agriculture Organization (FAO) of the United Nations, approximately 1.3 million hectares of land, including 558,000 hectares of cropland, were flooded as of early September. The effects of the floods were further worsened by rising logistics costs following price increases for petroleum motor spirit (PMS) since late August. Inflation Breakdown

Month-on-month inflation edges higher in September (2.52%)

Month-on-month inflation, which better captures recent price fluctuations, rose by 0.30% to 2.52% (annualized at 34.75%) in September, up from 2.22% (annualized at 30.07%) in August. This largely reflects the impact of flooding in the Northeast and the pass-through effect of the PMS price increases on transportation costs.

Food inflation rises as flooding mutes the impact of the harvest (37.77%)

After declining for two months, food inflation rose by 0.25% to 37.77% in September from 37.52% in August. The monthly food index also increased by 0.27% to 2.64% from 2.37% in August. This uptick largely reflects the impact of flooding in the Northeast, compounded by higher logistics costs due to the PMS price increases. According to the NBS, the commodities with the highest price increases were guinea corn, rice, maize, beans, yam, water yam, cassava, beer, Lipton, milo, bournvita, vegetable oil, and palm oil.

Core inflation down 0.15% to 27.43%, partly due to Naira appreciation

In a surprising turn for analysts, core inflation (which excludes food and energy costs) decreased to 27.43% in September from 27.58% in August, ending a nine-month upward trend. The monthly index also fell to 2.10% in September, down from 2.27% in August. This decline was partially attributed to a slight appreciation of the Naira in the official foreign exchange market. The currency strengthened by 3.54% to close September at ₦1,598.56/$ from ₦1,541.94/$ at the end of August. The National Bureau of Statistics highlighted significant price hikes in rents, road transportation, and medical services.

Rural-Urban Inflation

Urban inflation rose by 0.55%, reaching 35.13% in September, up from 34.58% in August, while the monthly index increased by 0.28% to 2.67%, compared to 2.39% in August. Similarly, rural inflation climbed by 0.54% to 30.49% in September, up from 29.95% annually, and increased by 0.33% to 2.39% from 2.06% monthly. The gap between urban and rural inflation widened slightly to 4.64%, up from 4.63% in August. This rise in rural inflation underscores the adverse effects of flooding on food production. Additionally, the 150-day tariff suspension appears to have mitigated the impact of increased transportation costs for moving agricultural products from farms to markets, as most imported staples are processed at the Lagos Port.

State-by-state inflation

In September, Delta surpassed Benue to become the state with the lowest inflation rate, as floods ravaged the Nation’s food basket. The states with the highest inflation rates are in the Northeast and Northwest, with Bauchi at 44.83%, Sokoto at 38.74%, and Jigawa at 38.39%.

Inflation to remain elevated in Q4 as the effect of the PMS price increase lingers

Headline inflation is projected to rise further in Q4 due to the ongoing threat to food supply from flooding. This would be compounded by the lingering impact of the PMS price increases and a possible boost in aggregate demand as the Christmas season approaches. The reversal in the downward inflation trend will be a major deliberation at the MPC meeting in November, the last for the year. A sustained uptick in inflation could prompt the MPC to consider raising the MPR by at least 25 basis points.

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