Dear Subscriber,

The National Bureau of Statistics will release the inflation data for May 2024 later this week. Based on our regression model from our Lagos market survey, headline inflation is expected to increase by 0.63% to 34.32% from 33.69% in April. If our forecast is accurate, it will be the fifth consecutive rise in 2024. The rate of increase in price level which was 0.49% in April is now projected to increase to 0.63%, which suggests that price will not be moderating anytime soon. This trend combined with other exogenous factors, i.e. the proposed minimum wage review and increase in the rate of money supply, shows that price inflation is still very potent.

Apart from the above, we are also projecting that food inflation will increase by 0.67% to 41.20% from 40.53%. Core inflation (inflation less seasonalities) will rise marginally by 0.36% to 27.20% from 26.84%, driven primarily by renewed currency pressures.

Skyrocketing money supply growth will push inflation further to 35.19%

Money supply growth (M3), which declined in March by 10.26% to N92.34trn, has reversed itself, jumping by 3.98% to N96.97trn in April, posing a major threat to the inflation trajectory. Research findings show that every 1% increase in money supply will lead to a 0.22% increase in headline inflation. This implies that the impact of the money supply growth of 3.98% might result in inflation increasing further to 35.19%. Therefore, the hope that inflation might taper is misplaced at this point in time. Hence, another aggressive rate hike by the CBN is possible at the next MPC meeting on July 22nd and 23rd.

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

Enjoy your read!