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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.
ALL ITEMS LESS FARM PRODUCE
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:
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