Dear Subscriber,

The NBS is scheduled to publish Nigeria’s headline inflation on Tuesday, November 15. After eight consecutive monthly increases, Nigeria’s official headline inflation will likely maintain its upward trend in the month of October, a period in which the economy has been ravaged by devastating floods. Our econometric model and survey of markets in Lagos and environs indicate that headline inflation will soar to a 17-year high of 21.32% in October. This will represent a 0.55% increase compared to September.

The major inflation-stoking factors remain currency depreciation, money supply saturation, supply shortages, and logistics constraints. The naira has crashed by 50.79% to N855/$ YTD and is likely to weaken further as the CBN moves to redesign three denominations of the currency. Meanwhile, food inflation is expected to accelerate further (23.95%), against the expectation of a slowdown, due to floods that have affected food producing states especially in the middle belt. Core inflation will stay elevated on the back of higher PMS and diesel prices, compounded by the persistent fuel scarcity.

Currency redesign and inflation expectations

The planned redesign of the currency is unlikely to have any impact on the general price level since it will only involve a cash exchange and won’t essentially reduce the money supply. However, as evidenced by the naira’s free plunge in the parallel market following the announcement, the exchange rate has been severely impacted. This new development could heighten the upside risks to inflation in the near to medium term. Against this backdrop, the inflation rate is likely to remain elevated throughout the year, worsened by the floods despite the harvest season. On the other hand, the Monetary Policy Committee is expected to keep the policy rate unchanged at its next meeting on November 22, 2022.

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