Dear Subscriber,

Nigeria’s headline inflation has climbed sharply to 18.17%, the highest level since January 2017. It is becoming clear that price inflation is not transient but is now more persistent. A decomposition of the contributing factors shows a much more composite set of drivers ranging from higher costs of refined petroleum products (12.07%) to an exchange rate pass through to consumers and the impact of high powered money with a shorter transmission time lag into the markets.

This time, all segments and baskets deteriorated showing that the impact of government interventions is falling far short of expectations in spurring output. Also that money supply growth (1.41%) is compounding the demand pull effect on the general level of prices. Total agric intervention was N1.487trn (0.78% of GDP), which is not only inadequate nominally but will also have a very limited multiplier effect on aggregate output.

The steep rise in inflation will be one of the major considerations at the MPC meeting next month. Majority of the committee members are more likely to vote in favour of a tighter monetary policy stance this time. As interest rates rise, the marginal propensity to save is likely to increase, reducing liquidity and tapering inflation.

In the download, the FDC Think Tank shares its thoughts on the impact of March’s inflation numbers on the economy.

Enjoy your read…