Early Harvest Pushes Down Food inflation

The National Bureau of Statistics (NBS) on Wednesday published the August Inflation data that revealed inflation rose by 17.01% y/y, further down by 37 basis points from 17.38% recorded in July 2021. This decline marks the fourth consecutive fall in the year-on-year inflation figure, after climbing for 19 consecutive months to a more than 2-year high of 18.75% in March 2021.   

“Two factors are likely responsible for this strong deceleration in food inflation: (1) weaker base effects and (2) impact of early food harvest”.

However, data from NBS shows that inflation rose by 1.02% month-on-month, rising faster than 0.93% which was recorded in July. This indicates that the general price level rose faster in August compared to July. 

For headline inflation sub-indexes, core inflation rose by 13.41% y/y in August compared to 13.72% in July, while food inflation increased by 20.30 y/y (versus 21.03% in July). This means that core inflation fell by 31 basis points year-on-year and food inflation fell by a more steeper 73 basis points year-on-year. 

Also Read: Inflation Drops to 17.38% in July; Food Prices to Double Every Five Years

However, from a month-on-month perspective, core inflation increased by 77 basis points m/m (versus 1.31% m/m in July) while food inflation rose by 1.06% m/m in August (0.86% in July). What these numbers show is that core inflation had a milder expansion in August compared to food inflation. 

What the numbers also show is that because food inflation fell by 73bps y/y in August (compared to core inflation decline of 31bps), it was largely responsible for the 37bps deceleration in headline inflation to 17.01% y/y in August. 

Two factors are likely responsible for this strong deceleration in food inflation: (1) weaker base effects and (2) impact of early food harvest. 

Also Read: Nigeria’s inflation problem and the ‘Gbatueyos’ at the CBN

At the last meeting of the CBN’s  monetary policy committee (MPC), it noted that it was satisfied with the current downward trend of inflation and expressed optimism that current interventions by the Bank in various sectors of the economy will further depress inflationary pressure as output growth improves and the negative output gap closes.  The MPC meets this week between Thursday 16th September and Friday 17th September 2021.

Over the coming months, the deceleration in headline inflation is likely to continue on the back of the harvest season which should get into full swing from end of August 2021 and base effects from the comparably lower CPI basket in 2020.

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