Dear Subscriber,

Nigeria’s headline inflation maintained its runaway trend again in July, rising sharply by 1.29% to 24.08%, the seventh consecutive monthly increase and the highest inflation rate in 18 years. What is more striking is that the month-on-month inflation measure, which when annualized, jumped to 40.77%. Monthly inflation is a more accurate reading of inflation expectations and is a major red flag for policy-makers. The steep rise in consumer price inflation largely reflects the impact of recent policy changes on food and transport costs. Food inflation rose sharply by 1.73% to 26.98%. The commodities that spiked the most were oil and fat, bread and cereals, fish, potatoes, yam and other tubers, fruits, meat, vegetable, milk, cheese, and eggs.

Another noticeable trend is the rural-urban inflation gap, which widened to 3.34% from 1.01% in June, largely reflecting the impact of higher logistics costs on commodity prices. The price of diesel, a major fuel used by trucks for food distribution and logistics surged by 18.06% to N850/ltr due to naira depreciation and the 7.5% VAT.

MPC likely to maintain its hawkish stance in September

The Nigerian Monetary Policy Committee (MPC) is scheduled to meet on September 25/26. This steep rise in consumer price inflation will be a major consideration at the meeting. Some policy-makers are beginning to question the effectiveness of interest rate increases as a panacea for controlling inflation. However, many analysts are of the view that a cocktail of policy measures including an interest rate hike is now imperative to rein in price inflation.

In the download and link below, the FDC Think Tank analyzes the July inflation number and its impact on businesses and the economy.

Do enjoy your read…