All inflation indices to increase
Based on our survey, headline inflation for February is estimated to climb up by 0.17% to 12.30%. If this projection is accurate, it will be the 6th consecutive monthly increase and the highest level in 22 months. Notwithstanding the rising inflation trend, the rate of increase in inflation is declining i.e. the slope of the inflation curve is flattening out. This suggests that the base year effect is waning.
Food inflation is the key contributing factor to rising inflation and is expected to increase by 0.13% to 14.98% in February. The impact of the partial closure of the land borders is taking a toll on food prices. Other inflation inducing factors include higher logistics costs and VAT hike. All other inflation sub-indices are expected to move in tandem with the headline inflation.
MPC to resume aggressive tightening cycle
A continued increase in the level of inflation which is now above the CBN upper limit of 9% makes the probability of a resumption of the tightening cycle more likely. Analysts’ consensus is that there is a 70% probability that the MPC will increase the MPR by 50 basis points to 14.0%. The MPC had already increased the CRR by 500 basis points to 27.5% at its last meeting.
In this publication, the FDC Think Tank shares its estimates for February inflation and likely policy reactions.
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