FDC ECONOMIC BULLETIN – AUGUST 08, 2022 [Re : Headline inflation set to surge again to 19.7% (16-year high)]

Dear Subscriber,

The official headline inflation for July will be released on August 15. Our Lagos market survey and econometric model is indicating that there will be another surge of 1.1% in headline inflation to 19.7%. If our projections are correct, it will be the 6th consecutive monthly increase and the highest inflation rate since 2006. Apart from the annual inflation rate, month-on-month inflation, which is a more current measure of price movements, is also expected to follow a similar trend, rising to 1.84% (24.52% annualized).

The most potent causative factors for price inflation in Nigeria today are exchange rate pass through (N667/$), the knock-on effect of the sharp increase in the price of diesel (N780/litre) and to a limited extent the impact of money supply growth and saturation (N48.8trn). The exchange rate weakness at this time appears to be more potent than other causative factors. It has had a 76% impact on the price level compared to diesel (11.6%).

Nigerian inflation increasing despite declining global food price index

Current data shows that inflation is increasing globally, regionally and domestically. Most economists agree that global inflation is at a tipping point, partly due to the Russia-Ukraine deal to resume grain exports from the Black Sea port. This is evidenced by the 8.6% decline in the global food index to 140.9points in July.

However, there is a typical time lag between global events happening and its transmission into domestic prices. Imported inflation is a combination of high global prices and exchange rate depreciation. Even though we have begun to see global food prices decline, the impact may be limited in Nigeria by a further deterioration in the value of the naira in the near term. In spite of this increase in the inflation rate, we do not expect the MPC to increase the policy rate in September.

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