August18 , 2022

CBN says services and agricultural sectors surged amid industrial sector dip in Q3 2021

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CBN says services and agricultural sectors surged amid industrial sector dip in Q3 2021

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Central Bank of Nigeria (CBN) stated that the Services and Agriculture sectors grew, in real terms, in the third quarter of 2021, while the Industrial sector dipped, owing to the contraction of some of its activity sectors.

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This was disclosed by CBN, in its 2021 third-quarter economic report.

Although the Industrial sector declined, the performance of the Industry sector improved in the third quarter of 2021, recording a lower contraction of 1.63 %, compared to 6.12% in the corresponding quarter of 2020.

According to the CBN, the industrial sector’s improvement was due largely to the performance of the Manufacturing and Mining & Quarrying sub-sector.

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What the CBN is saying
The CBN said, “The services and agriculture sectors grew, in real terms, in the third quarter of 2021, while the industry sector dipped, owing to the contraction of some of its activity sectors.”

CBN stated that Finance and Insurance, trade, and ICT subsectors propelled economic growth.“The services sector recorded an improved growth of 8.41 per cent (year-on-year), in contrast to a contraction of 5.49 per cent in the corresponding quarter of 2020. Finance and insurance, trade, and ICT subsectors drove the growth, which grew by 23.23 per cent, 11.90 per cent and 9.66 per cent, respectively,” it said.

According to the CBN, the agriculture sector grew at a slower rate of 1.2% in Q3 2021, compared to 1.39 per cent in the same quarter of 2020.

The slower growth was attributable to a 3.97% decline in the fishing subsector, which was driven by the seasonal rise in water levels, according to the report. Crop production, livestock, and forestry subsectors expanded by 1.36%, 0.12%, and 1.98%, respectively.

The industrial sector’s performance improved in the third quarter of 2021, with a decline of 1.63% compared to 6.12 per cent in the same quarter of 2020, according to the report.

Core inflation stood at 13.87% YoY in December 2021; 0.2% higher than 13.85% recorded in
November 2021.
The uptick in yearly headline inflation essentially halts the trend of deceleration seen in the preceding eight readings, and the renewed increase in headline inflation rode on the back the price acceleration witnessed in both the food and core subindexes.

Headline Inflation
In December 2021, headline inflation rose by 1.82% MoM, representing a 0.74% increase from the rate of 1.08% that was recorded in the previous month. The yearly average rate rose to 16.95%, 0.03% lower than 16.98% recorded in the previous month. The sharp jump in monthly headline inflation was sponsored by the upsurge in prices of staple food items relative to the preceding month.

Food Inflation
The food subindex rose by 2.19% MoM, reflecting a 1.12% increase from the rate of 1.07% recorded in November 2021. The yearly average rate rose to 20.40%, 0.22% lower than 20.62% recorded in the preceding month. The food subindex witnessed renewed pressure due to the characteristic year end spending on food items.

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Core Inflation
Core inflation stood at 1.12% MoM, down 0.13% from 1.26% recorded in November 2021. The yearly average rate also rose to 13.16% last month, 0.21% higher than 12.96% recorded in the preceding month. The highest increases were recorded in the prices of gas, liquid fuel, wine, narcotics, tobacco, spirit, repair and hire of clothing, garments, shoes and other foot wear and clothing materials, other articles of clothing and clothing accessories.

 

Analyst’s Comments
Ending the year on a rocky note, headline inflation reversed its trend of moderation, which lasted for eight consecutive months, in December 2021. The yearly headline rate ceased to moderate, on the back of an uptick in staple food prices in a magnitude that was more significant than the typical seasonal price uptrend affiliated with the December festive season. Monthly food prices for December rose at the fastest pace in over four years, as existing inflationary drivers like FX scarcity, Naira depreciation and supply disruptions were exacerbated by the festive induced upsurge in food demand. We note the disturbing uptrend in the prices of imported foods, and alcoholic beverage, tobacco and kola, as this segments inched up by 6bps and 53bps to 17.34% and 13.68% year-on-year, respectively, in the review month. Elsewhere, monthly core inflation nudged southwards in December, due to reduced Covid-19 related disturbances that had created a pressure on prices in the transportation and health spaces.

Despite the reversal in the trend of inflation, we expect both headline and food indexes to resume the downward trend, drawing support from an elevated base period in the first quarter of the year. Beyond this period, the impact of the base effect should become less material, and the subpar planting season in 2021 should start to adversely impact food prices as we move further into the year. Also, energy prices is expected to constitute a major upside risk to inflation in 2022, given expectations of elevated prices in the international oil market and an imminent deregulation of the downstream oil sector by mid-year.

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