No economic indicator has sparked more controversy in Nigeria in recent times than the rate of inflation. Whilst empirical data supports the view that the annual inflation of 12.40% is a true reflection of the change in prices in May 2020, anecdotal evidence suggests that the rate of inflation is much higher.
Some analysts are of the view that the rate of inflation could be as high as 16%. This is why the headline inflation of 12.40% has been greeted with some skepticism by some but the core group of analysts believe that the data is credible.
The breakdown of the numbers shows some interesting trends. The rate of change of headline inflation of 0.06% was lower than anticipated. The upper end of expectations was for an increase of 3.7%. Core inflation, which measures inflation less seasonalities came in at 10.12%. This shows that cost-push factors are crystallized around this level and that base year effects are waning.
The critical issue therefore is that month-on-month inflation, which is reflective of current conditions (pandemic + exchange rate effect) is spiking towards 14.87% annualized. Therefore, we expect the inflation trajectory to continue increasing but at a modest pace. This is because slow reopening of the economy, acute reduction in disposable income of the informal sector and a reduction in the price of petrol is helping to make inflationary pressures more benign.
In this publication, the FDC Think Tank shares its thoughts on the impact of May’s inflation numbers on the economy.
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