Dear Subscriber,
The inflation report released today was consistent with FDC’s forecast of 22.8%. Nigerian inflation has reached an 18-year high of 22.79%. Prices increased across board, both in the food and non-food baskets, largely because of seasonality (planting season) and the initial disruptive effects of the fuel subsidy removal and exchange rate unification. Also noteworthy is the fact that core inflation (inflation less seasonalities) increased by 0.21% to 20.27% in June, confirming the notion that Nigerian inflation has both structural and transient components.
You Ain’t Seen Nothing Yet
What is more striking is the fact that month-on-month inflation rose to 2.13% from 1.94% in May (when annualized – 28%), which means that July inflation is likely to increase at a much faster pace. The inflation numbers do not yet reflect the full impact of the policy changes. This is because of consumer price resistance and inventory build-up before the policy pronouncements. As inventory levels reduce and manufacturers begin the re-ordering process, the full impact of the policy change will be more apparent. Furthermore, the exchange rate for computing import duty has been adjusted by 83% to N770/$ from N422.3/$. This will lead to an increase in the price of imported commodities.
Containing Inflation is Not an Easy Task
It took three years of constant increases in policy rate by the U.S. Fed (with all its financial weaponry) to bring down inflation from its peak of 9.1% in June 2022 to 3% in June 2023. Therefore, bringing inflation under control in Nigeria will be a long and hard journey.
The MPC has been resolute in its statements about maintaining a tightening stance, but in reality, monetary conditions have been loose as effective rates of interest have been declining. The difference between inflation and effective interest rates has widened to 1700 bps. In the current dispensation, the CBN and the Debt Management Office (DMO) will have no alternative but to allow effective interest rates to rise sharply.
The FDC Think Tank examines the June inflation figures and their effects on businesses and the economy in the link provided below.
Do enjoy your read…
