CPI and Inflation Index for January 2012

In: cpi|Economy

2 Mar 2012

The Nigeria Bureau of Statistics recently published the CPI and Inflation figures for January 2012. The summary of the report is below.

The Composite Consumer Price Index which measures inflation rose sharply to 12.6 percent  year-on-year  in  January  2012.  This  figure  is  2.2 percentage  points  higher than  10.3  percent  recorded  in  the  previous  month.  The  monthly  composite  CPI rose  significantly  by  3.4 percent  when  compared  with  December  2011.    The increase in the headline index, composed of the “Core” and Food indices, was due to  the partial  removal  of  the  subsidy  on  the  Premium  Motor  Spirit  (petrol)  that pushed  up  prices  of  many  food  and non-food  items  as  a result  of  the increase in transportation costs.

The urban inflation rate recorded a sharp increase when compared with the rural figure in January 2012. The year-on-year increase for Urban and Rural dwellers was 16.4 and 9.7 percent respectively.  The urban All Items index rose by 5.3 percent on month-on-month,  while  the  corresponding rural  index  increase  by  1.8  percent when compared with their preceding month. The inflationary impact of the partial subsidy removal was therefore largely concentrated in the urban areas relative to the  rural  areas  where  most  Nigerians  live.  The  biggest  contributors  to  the consumer  inflation  were  the  high  prices  of  some  food  items,  liquid  fuel  and transport fares, and other miscellaneous goods and services which need liquid fuel and or transport fares for providing their services.

The percentage change in the average composite CPI for the twelve-month period ending  January  2012  over  the  average  of  the  CPI  for  the previous  twelve-month period  was  10.9.  This  was  slightly  higher  than  the  10.8  percent  recorded  for  the preceding month.   The corresponding 12-month year-on-year average  percentage change for urban and rural indices were 9.1 and 12.3 respectively.

While the impact of the subsidy removal on the CPI was visible and significant, this was tempered by several demand side factors which kept a downward pressure on price increases and prevented them from rising much higher than would have been expected.  Prices are dependent largely on demand and supply forces. If prices rise above buyers ability to pay (since disposable income remains constant), there will be  excess  supply  at those  high  prices  and  for  perishable  products  in  particular, prices will gradually come back down to levels where people can afford them. Even for non-perishable products, there is an amount of time after which a seller who depends  on  daily  income  will  keep  prices  high  in  the absence  of  demand,  after which  he  will  be  forced  to  reduce  his  prices  to  get  some  sales  to  carry  out  his daily/weekly family activities even if reducing those prices will be at a loss to him.

The CPI and consequently, the inflation rate though significant was moderated by several demand factors in January 2012.  Firstly, due to proactive monetary policy from  the  Central  Bank  of  Nigeria  (CBN)  in  the  second  half  2011,  Inflation  was expected to drop to between 8% and 9% in January 2012 (assuming there was no partial removal of subsidy). This earlier tightening by the CBN therefore helped to curtail the overall impact on inflation in January 2011 following the partial removal of subsidy. At the same time, the slow release of funds by the government’s FAAC reduced effective  demand  by  reducing  available  resources  for  backing  increased consumption  and  expenditure  during  the  month  of  January. This coupled  with consumer’s  anticipated  recovery  from  December  expenses  (which  did  not  occur again,  due  to  reduced  funds  in circulation) further  depressed  demand  and  thus limited  price  increases  and  gradually  revised  some  downwards.

Furthermore, during  the  strike period in  January,  2012,  consumers  had  a  temporary  lack  of access to funds as banks were closed. Finally, consumers with higher consumption profiles  had  stockpiled  goods  before  and  during  the  strike  period  and  thus  their demand  even  after  the  strike  period  was dampened as  they  drew  down  their pantries rather than demand new stocks. This reduced demand in the market such
that the high prices that immediately followed the partial removal of subsidy was dampened  and  started  coming  down  slightly  in  the  second half  of  January  2012 (though not to the pre partial subsidy removal levels). While we acknowledge that prices of certain food products were stillvery high in some parts on the country, it is  important  to  note  that  they  were  lower  in  others.  Food  price  increases  in  the Northern part of the country, where most food is produced were not as high as in the South where food is subject to significant transportationcosts.

Accordingly, the transport  costs  effect  of  the    partial  subsidy  removal  on  food  prices  will  be  a  lot less  in  the  North  were food is  largely  produced  since  it  is  closer  to  the  source  of production and hence has fewer miles to travel than in the Southern market where it has  to  be  transported.  At  the  same  time  the rise in the  price of imported food will be lower in the Southern States which are closer to the major ports than in the North  where  imported  food  items  have  to  be  transported  and  hence  affected  by the increase in fuel prices.

Such dynamics also helped to limit the overall impact on the rise in CPI and inflation which as an average across the country. The sharp rise in urban  inflation  by  16.4  percent  as  aforementioned,  relative  to  the  somewhat muted  rise  of  9.7  percent  in  rural  inflation demonstrates  this  geographical dimension and variation in price increases in the country.

In  January  2010,  the  level  of  the  Composite  Food  Index  was  higher  than  the corresponding level a year ago by 13.1 percent.  This was higher than 11.0 percent recorded  in  the  previous  month.  On  a  month-on-month  analysis  the  average monthly  food  prices  rose  in January 2012  by  0.9  percent  from  December  2011.
Again,  while  the  higher  food  prices  partially  reflected  transportation  costs,  other factors (stated above) limited further price increases.  The rise in the food inflation was mainly due to the increasing cost of yam, other tubers, cooking oil, meat, fruit, vegetables  and beverages.  The  average  annual  rate  of  rise of  the  index  was  10.5 percent (year-on-year) for the twelve-month period ending January 2012.

The “All items less Farm Produce” index which excludes the prices of often volatile agricultural  products  rose  by  12.7  percent  year-on-year, while  the  average  12 month  annual  rate  of  rise  of  the  index  remained  stable  at  11.8  percent  for  the twelve-month period ending January 2012. On a month-on-month basis, the core index increased 3.5 percent in January 2012. The increase was mainly on transport fares,  liquid fuels  and  other  services  (  based  on  personal  services  such  as  hair dressers,  shoe  cleaners,  personal  assistants,  etc)    that require  transportation  to provide their services, or petrol, in the case of barbershops for example, to power generators.  Thus  such  services had  to  factor  in  price  increases  of  petrol  and  this affected the price of their services.

And you can also download the report here:

Nigeria Bureau of Statistics - CPI and Inflation Figures - January 2012 (1214).

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