Based on our market survey and regression analysis, Nigeria’s annual inflation rate will fall by 0.25% to 17.5% and core (inflation less seasonalities) will decline marginally by 0.08% to 13.6% in July. In the last few months, our projections and most others ran contrary to the NBS official data, which had led to various comments regarding the definition of annual, core and food inflation.
During the second quarter, analysts were confounded by the divergence between inflation expectations and the official data on Nigeria’s headline inflation. Most were perplexed and probably frustrated by the data which did not seem to reflect the reality in the market place. This was more so as prices of basic commodities seemed to be galloping simultaneously with the slight reduction in the official inflation data for 3 consecutive months from 18.17% to 17.75%. Announcements by most of Nigeria’s trading partners – USA, EU, UK and China- showing that their annual rates of inflation were spiking, made the difference more stark. E.g. in the US, which represents approx. 10% of Nigeria’s international trade, inflation spiked to a 13-year high from 1.4% to 5.4%. Even the Food and Agric Organization announced that global food prices were at an 11-year high. So how come that Nigeria’s inflation has been declining at a time when global inflation is soaring??
Two reasons come to mind, the first being what economists call ‘the outside lag’ (time lag between policy implementation and the impact on the economy or markets) and the second is an unprecedented level of ‘consumer price resistance’. However, our sample size is Lagos specific. Lagos is believed to be approximately 40% of the national GDP. Therefore, if a weight is ascribed to Lagos, it is likely to be a true reflection of the national inflation basket. This notwithstanding, the controversy between the official inflation data, market perception and anecdotal evidence will continue to rage for some time to come.
The Q2 GDP data will be released on August 26 and consensus forecasts range from 2.6%-3.2% due to base year effects. If the numbers come in as projected, we expect the MPC to maintain status quo again at the September meeting on the back of sustained economic recovery and continued moderation in inflation.
In the download and link below, the FDC Think Tank shares its estimates for July inflation and likely policy reactions.
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