Contrary to expectations, headline inflation in June declined by 0.18% to 11.22%. Both food and non-food basket fell. More importantly, core inflation also declined. The fall is partially explained by a reduction in aggregate demand and a drop in disposable income. This was compounded by some further tightening in liquidity due to the mopping up activities of the CBN with open market operations and higher sales of forex. Total forex sold spiked by 27.37% to $1.21bn (N432bn), 1.6% of broad money supply (M2) and approximately 65% of FAAC.
This is coming at a time when the CBN is trying to persuade banks to increase credit to SMEs. Banking sector credit to the private sector increased marginally by 9.47% to N24.86trn in the month of May.
In this publication, the FDC Think-Tank analyzes the inflation data for June and its impact on the economic policy environment.
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