Dear Subscriber,

Contrary to our forecast of 21.85%, which was based principally on the fall in currency in circulation and the velocity of money, Nigeria’s headline inflation increased again, to 22.04% from 21.91% in February. This is the third consecutive monthly increase and the highest inflation rate since September 2005.

The persistent rise in the general price level can be largely attributed to elevated prices of food and non-food items. The disruptive and aberrational effects of the initial cash squeeze and re-infusion of old Naira notes back into the system only served to intensify inflationary pressures. It also brings to the fore the difference between inflation expectations and inflation psychology. While the latter is driven by uncertainties surrounding demand the former is based on seasonalities (planting season) and immediate changes in the quantity of supply.

Nigeria’s food inflation defies global trends

The global food index has consistently declined in the last 12 months. The reading fell by 2.1% to 126.9 points in March. However, Nigeria’s food price index continued its upward trend, rising by 0.1% to 24.45% in March. This is partly because of the transmission lag between global food price changes and its impact on domestic prices.

CBN will remain committed to rate hikes

Headline inflation is expected to rise again in April on increased aggregate demand (Easter and Ramadan celebrations). This increases the probability of another rate hike at the MPC meeting next month. The IMF has also urged the CBN to maintain a hawkish monetary policy stance to rein in inflation.

In the download, the FDC Think Tank analyzes the March inflation numbers and their impact on businesses and the economy.

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