Dear Subscriber,

The official inflation data will be released tomorrow. Our econometric model and market survey is projecting a spike in inflation of 0.69% to 18.4% for the month of June. Whilst this is the highest level in 64 months, it coincides with a surge in inflation in the U.S to 9.1%, a 41- year high and in neighboring Ghana where inflation is at 29.8%, the highest since 2003.

Diesel price the main culprit

This huge leap in inflation could partly be attributed to the knock on effect of the price of diesel which has increased by approximately 278.01% since January 2022. Many institutions depend on diesel to power their generators as well as trucks used to transport food items. Apart from the power costs, most traders and manufacturers have been sweltering under the impact of dollar scarcity and a depreciating exchange rate. The combined effect of power costs, exchange rate depreciation and money supply saturation is manifesting in a spiraling inflationary cycle.

Inflation: Nigeria not alone

High inflation is not a Nigeria specific phenomenon and is now a threat to global macro-economic stability. Most central banks in advanced, and emerging markets and developing economies (EMDEs)are adopting aggressive monetary policy tightening strategy to confront the hydra–headed inflation problem.

CBN likely to hike the policy rate again

In all, almost every central bank has raised the benchmark interest rate in the last quarter. Whilst interest rate hike is a limited tool for fighting cost push inflation, the choices confronting policy makers are limited. We therefore expect the MPC/CBN to increase the MPR by 50bps in its meeting of July 18 & 19. From all indications, it would appear that the journey from partial equilibrium towards a more general equilibrium is likely to be a hard road to travel for Nigerian policy makers in the last two quarters of 2022.

In the download, the FDC Think Tank shares its estimates for June inflation and likely policy reactions.

Do enjoy your read…….