Inflation and Rising Food Prices

April 13, 2012 / Proshare Research

Inflation was one of the main concerns of emerging economies in 2011 and was primarily driven by high food prices across the globe. This led to tightening of monetary policy and slowdown in many countries. Although the food prices have come down in the first two months of 2012, the trend is not expected to continue for long. According to the United Nations Food Agency, prices of grains and vegetables will remain firm due to demand - supply mismatch. Demand, especially from Asia is expected to remain strong while supply is going to be less than previous estimations due to the drought in many South American countries. This will lead to increase in food prices. The UN food agency has also warned that the food prices may become volatile as unpredictability in prices is increasing. As a result, high food prices are moving to the top of policymaker agendas, driven by fears it could stoke inflation, protectionism, civil unrest and dent consumer demand around the world. Based on information released by the National Bureau of Statistics in Nigeria, inflation in the year 2011 kept fluctuating as it keeps going up and down while it fell to 11.9% in February 2012 after increasing to 12.6% in January same year from 10.3% in December 2011 despite the partial removal of fuel subsidy. (http://www.proshareng.com/reports/4724)

Year 2011

2012

Months Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb

Inflation Fig Change Change (%) (%) Mth CPI ( Food) (%) Mth 12.1 0% 246.5 0% 11.1 -8% 253.8 3% 12.8 15% 254.7 0% 11.3 -12% 254.5 0% 12.4 10% 255.5 0% 10.2 -18% 259 1% 9.4 -8% 259.6 0% 9.3 -1% 266.8 3% 10.3 11% 269.1 1% 10.5 2% 269.6 0% 10.5 0% 270.4 0% 10.3 -2% 276.2 2% 12.6 22% 278.8 1% 11.9 -6% 286.4 3%

Source: NBS/Proshare Research

Composite Consumer Food Price related Index kept rising all through 2011 which continued in the first two months of 2012. The partial removal of fuel subsidy also reflected in food prices as food related inflation increased in February 2012 higher than the corresponding level a year ago by 12.9%. This was lower than 13.1% recorded in the previous month compared with January 2012 figure, average monthly food prices rose in February 2012 by 2.8 percent. (See above table and chart below)

The rise in food inflation in February 2012 was mainly due to the increasing cost of cereals, yam, cooking oil, meat, fruit, vegetables and beverages. These food price rises create macro vulnerabilities, particularly for countries with a high share of food imports and limited fiscal space, as well as increases in poverty levels as confirmed by the NBS).
(http://www.proshareng.com/reports/4724)

Estimates of those who fall into, and move out of, poverty as a result of price rises since June 2010 show there is a net increase in extreme poverty of about 44 million people in low- and middle-income countries. (http://www.worldbank.org/foodcrisis/food_price_watch_report_feb2011.html) Comparative Prices of Goods/Services Survey Focus carried out by Proshare across Lagos State, Nigeria revealed that the prices of certain raw food stuffs dropped despite the partial removal of fuel subsidy while the prices of food items produced by manufacturing firms recorded slight increase. (http://www.proshareng.com/news/16779) The minimal increase recorded in the manufactured goods can be attributed to importation of such goods which were not produced locally. Food Items such as a loaf of bread recorded 10% price increment, a sachet of pure w grew by 100% while household food items such as Indomie Noodles (70kg) and Omo (250g) also increased by 17% and 25% respectively. Raw food stuffs such as bag of rice and a tuber of yam both moved up by 12% and 50% respectively while the price of a basket of tomatoes grew by 14%.

S/n 0

Item PMS per Litre Prices of Food Items Bread (1 Loaf) (STD) Bathing Soap (Per Bar) Pure Water sachet Poundo Yam (1 Bag) Salt Indomie Noodles (70kg) Omo 250g Omo 1kg Harpic Toilet Wash (750ml) Imperial Leather Roll Lux Soap Roll Dettol Skincare Roll Zip Detergent Closeup Complete Closeup Menthol Maclean Toothpaste Closeup White Drummer Gel Airfreshner Prices of Raw Food Stuff Bag of Rice (Caprice) Bag of Beans Tuber of Yam Bag of Pepper Basket of Tomatoes Bag of Garri Semovita (Semolina)

Price @ Dec 23, 2011

Price @ Jan 20, 2012

Price @ April 6, 2012

Change

Notes

N
65

N
97

N
97

%
49%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

200 100 5 400 30 30 200 400 450 250 250 600 85 170 170 170 170 100

220 120 10 550 50 35 250 450 500 300 300 660 90 200 190 180 190 150

220 120 10 450 50 35 250 450 650 400 350 700 90 200 170 180 220 120

10% 20% 100% 13% 67% 17% 25% 13% 44% 60% 40% 17% 6% 18% 0% 6% 29% 20% 12% -13% 50% -14% 14% -5% 5%

8,500.00 8,700.00 9,500.00 15,000.00 17,000.00 13,000.00 200 300 300 7,000.00 8,000.00 6,000.00 3,500.00 4,000.00 4,000.00 4,000.00 4,500.00 3,800.00 1,900.00 2,000.00 2,000.00

1 2

Exchange Rate as at January 04, 2012 Naira to Dollars 157.7 Naira to Pounds 245.17 Interest Rate Lending Inter-Bank % 12 14.33

156.85 242.61 % 12 14.25

155.9 247.46 % 12 14.41

-1% 1%

3 4

0% 1%

Source: NBS/Proshare Research

** See Comparative Prices of Goods and Services since January 1, 2012 here.

http://www.proshareng.com/news/Nigerian%20Economy In the immediate term, it is important to ensure that further increase in poverty levels are curtailed by taking measures that calm a jittery populace/market and by scaling up safety net and nutritional programs. Agriculture thus becomes a national security imperative. Investments in raising environmentally sustainable agricultural productivity, better risk-management tools, less food intensive bio-fuel technologies, and climate change adaptation measures now

become more than necessary over the short to medium term in order to mitigate the impact of further food price instability on the most vulnerable.
End.