Dear Subscriber,

After 2 months of decelerating inflation, we might be approaching a point of reversal of the trend. Our survey projects that headline inflation will increase marginally by 0.22% to 32.37%. At this point, it is not the nominal inflation that matters, but the trend that will leave policymakers puzzled. The implementation of the new minimum wage of N70k and its consequential costs will further exacerbate inflationary pressures.

Our forecast also points to the likelihood of a slight increase in the monthly index from 2.22% to 2.38% (32.66% annualized). Core inflation rate (inflation excluding seasonal effects) is likely to increase marginally as well by 0.18% to 27.73%. This will be spurred by higher petrol prices and the weakness of the Naira in the forex market.

However, food inflation, the major symptom of inflation in Nigeria, is projected to continue its downward trend to 36.59%, down from 37.52% in August. This decline could be attributed to the harvest season and the impact of duty waiver on imported food commodities. Thus, the effect of the increase in food supply more than compensated for the rise in logistics costs.

Consumers are downtrading (Value-for-money

Typically, consumers when confronted with an erosion of income will change their preference in favour of cheaper substitutes or engage in downtrading. This is because of the value-for-money incentive resulting from their budget constraints. There is empirical evidence to show that both in quality of purchases and quantity Nigerian consumers have reduced their spending in line with this trend. The effect is that corporates are reporting an increase in the value of their turnover but a reduction in the volume produced. For example, the flour millers have pushed their prices up from ₦35k a year ago to ₦65k. Sales are up, but volume is down.

The CBN will be dovish

The MPC was aggressive and preemptive in its tightening in September by 50 basis points. We expect it to maintain the status quo at the next MPC meeting in November. This is to prevent the economy from going into a hard landing and a possible recession.

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

Do enjoy your read…