Lay-man explanation of NBS August 2018 inflation report
The inflation rate has eventually risen after declining for 18 consecutive months.
The CPI rose by 11.23% year–on–year in August 2018, which is 0.09% higher than the headline inflation rate in July 2018 (11.14%).
This simply means the rate at which the general price level rose in August 2018 (from August 2017) is higher than the rate at which the same metric rose in July 2018 (from July 2017)
This is the first time headline inflation has risen on a year on year basis since January 2017, when inflation was as high as 18.72%.
The headline inflation rate rose due to a rise in all price indices in the economy. This means that all price indices including food, clothing, housing, furniture, health, transport, communication, recreation and restaurants rose simultaneously in August 2018.
Ironically, the Headline index increased on a month-on-month basis by 1.05 percent in August 2018, down by 0.08 percent points from the rate recorded in July 2018 (1.13 percent). This means prices rose at a slower rate between July 2018 and August 2018.
What does this mean to you?
To the average Nigerian, this actually means prices are responding to the electoral season which is fast approaching as demand is rising in the economy.
This also implies that creditors lose as debtors gain. This will lead to a rise in lending rates on loans from banks due to the high risk environment. So, banks will demand for more interest to compensate for the fall in the purchasing power of the Naira.
Furthermore, this means the real worth of pensions fall as pensioners will purchase lesser amount of goods with the same amount of money now than in previous months.
Finally, the rise in inflation shows a higher risk to investors. The rule is the higher the risk, the higher the return expected on investment. Therefore, investors will bid for higher yields on treasury bills.
Food Inflation
The food inflation figures show a rather impressive result as it records the second slowest rise in food prices since January 2017. This is a turning point from the earlier declines recorded year to date. This is because the food inflation index rose by 13.16 percent in August 2018, higher than 12.85 percent in July 2018.
According to the report by the NBS, the rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, vegetables, fish, fruits and oils and fat. This could be attributed to the religious festivities – Ileya which led to an upsurge in demand for goods and services all across the nation.
Further analysis reveals that food prices rose at the slowest pace in July 2018 (12.85 %) in the last 18 months (since January 2018). August 2018 (13.16%) was the month with the second slowest rise in food prices within the last 18 months. This upward movement could be traced to the easing crises between herdsmen and farmers. Within the last 18 months, food prices rose fastest in September 2017, a period that coincided with reports of massacre by the herdsmen.
What about all other items except food?
The Core Index which measures the movement in all other items except agricultural products grew at a slower rate in August 2018 (at 10.0 % year on year) than in July 2018 (10.2%). The fastest price increases were recorded in the prices of domestic services and household services, dental services, hospital services, medical services, repair of household appliances, tobacco, wine and repair of furniture.
Urban and Rural Inflation
It may interest you to know that there’s an inflation reading for rural and urban areas with regards to their varying consumption patterns.
Urban inflation rate rose by 11.67 % year on year in August 2018, greater by 1 basis points (0.01%) in July 2018 (11.66 %).
Rural inflation increased by 10.84% in August 2018, a similar basis point difference above the figure in July 2018 (10.83%).
On a monthly basis, both urban and rural inflation figures rose by a slower rate – 1.00% and 0.96% from 1.23% and 1.18% respectively.
This means that prices rose faster in urban areas than in rural areas. Off course, common sense supports this view. However, both are rising due to the trickle down effects of macroeconomic events that affect both areas.
States Inflation
Indeed, NBS also has a unique inflation reading for different states in Nigeria. Due to the difference in consumption pattern amidst various states, it may be difficult to do a comparative analysis between the sub-nationals. The NBS records the rise in all items (called all-items inflation) and in food (food inflation) for all states.
On a year on year basis, Yobe State was the state with the fastest hike in prices of all items (12.90%). Lagos came next with an inflation figure of 12.64% while Enugu had the third fastest hike in prices (12.52%). This means prices of all goods and services in those states rose faster in these states between August 2017 and August 2018 than all other states of the federation.
Meanwhile, places with the slowest rise in prices include Kwara (8.25%), Borno (9.88%) and Benue (10.11%) on a year on year basis. This implies that prices rose slower in one South western state and two northern states when comparing prices in those states between August 2017 and August 2018.
On month on month basis (that is comparing prices between July 2018 and August 2018), all items-inflation was highest in Plateau (1.96%), Lagos (1.73%), and Ogun (1.58%).
It’s unsurprising that Lagos makes the top-three list of states again when comparing prices on a monthly basis. This mirrors the rising migration of individuals into Lagos, the smallest state in the country.
The lowest month on month inflation was recorded in Kwara. In fact, the south western state recorded a negative inflation or price deflation. This means that prices actually fell in the state. This could be attributed to its premium position between the North and the South that affords it access to agricultural products from the north and other surrounding south-western states. Its strategic position could have been the reason for the decline in prices in the state.
The top two states that experienced the slowest rise in prices are Abia (0.37%) and Delta (0.53%) states.
Food Inflation In States
In August 2018, Lagos (15.79%) had the fastest food inflation reading on a year on year basis while Abuja (14.99%) came next. The third state with the fastest rise in the prices of food is Ebonyi (14.83%).
It’s obvious that food inflation rose the fastest on a year on year basis in both the political and economic capital of Nigeria due to the high standard of living in both areas coupled with the influx of investors and visitors from every part of the nation.
Kano (10.64%), Akwa Ibom (11.02%) and Borno (11.03%) recorded the slowest rise in food inflation on a year on year basis.
On month on month basis however, August 2018 food inflation was highest in Ebonyi (2.71%), Lagos (2.57%) and Katsina (2.49%). Again, Lagos makes the top 3 states with the highest inflation reading while Abia (0.25%) and Delta (0.27%) recorded the slowest rise in food prices.
Once more, Kwara recorded food price deflation or negative inflation (general decrease in the general price level of goods and services or a negative inflation rate) in August 2018.
Last week, an expository article explaining inflation in layman terms was published on Ask Nigeria.