Nigeria’s headline inflation increased for the 8th consecutive month to 12.34% in April from 12.26% in March. The uptick in inflation came as no surprise to analysts. The movement restrictions and exchange rate adjustments in April were enough to cause a jump in core inflation by 0.25%, which represents a faster pace than food inflation’s change of 0.05%. However the real surprise was the marginal rate of increase in food inflation.
Inflation expectations for the coming months remain bleak as the movement restrictions persist, leading to output constraints. This could result in a steeper rise in headline inflation to 15% in June.
Monetary team in a conundrum
Technically speaking, Nigeria is facing a stagflation scenario – rising inflation, slow growth and rising unemployment. Addressing these challenges will prove a herculean task for the policy makers who are preoccupied with the Covid response. Nonetheless, we expect the Monetary Policy Committee to maintain status quo on all monetary policy parameters at its meeting next week. This will enable the CBN evaluate the impact of the intervention funds injected as palliatives on the market liquidity and inflation.
In the publication, the FDC Think Tank shares its thoughts on the impact of April’s inflation numbers on the economy and MPC’s decision.
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