Dear Subscriber,
Inflation bites harder as interest rates hike spike
Inflation is becoming a constant in Nigeria. It is now at an 11-month high (17.71%) and is eroding the purchasing power of households. In the month of May, headline inflation increased for the 4th consecutive month. The most significant driver of inflation is the stubborn rise in food inflation. The average price level of the food basket spiked by 1.13% to 19.50% in May from 18.37% in April. The Russia-Ukraine war has negatively impacted global commodity prices with a knock-on effect on Nigeria.
Wages remain stagnant in the face of rising inflation, putting upward pressure on the costs of living. Resultantly, many consumers are reducing their spending budgets, and in some instances, trading down in other to maintain their consumption level. To further compound the problem, most state governments are finding it difficult to pay the minimum wage and some others may be forced to lay off workers as government revenue dwindles. The removal of electricity subsidy which triggered a spike in electricity tariff by 58.06% will also weigh on household welfare and the operating costs of businesses.
The CBN has recently demonstrated greater commitment to combat inflation. After 70 months of no increase in the MPR, the MPC made a quantum leap of 150bps to 13%p.a. It also reiterated its resolve to use every tool within its reach to fight the surging inflation. Typically, an increase in interest rate will raise the propensity to save by both households and businesses. While banks will benefit from increase in customers’ deposits, there are fears that the attendant increase in the costs of borrowing may heighten the risk of loan defaults and further stifle investment spending.
This edition of the Unity Bank Digest, as usual, provides you with intriguing recent economic news and interesting social stories.
Please enjoy your read!
