FDC ECONOMIC BULLETIN – AUGUST 17, 2020 (Re: Headline Inflation at a 28-month high of 12.82%)

Dear Subscriber,

The National Bureau of Statistics (NBS) released the inflation data this afternoon. As widely anticipated, the consumer price inflation spiked to 12.82%. This will be the highest level since March 2018. It validates the anecdotal proxies that show price inflation responding to money supply and exchange rate pressures. It also indicates that food inflation has remained stubbornly high at 15.48%.

The outlook for price stability remains troubling as the economy is re-opened and output stays constrained. The rural-urban inflation differential declined by 0.07%. This confirms the notion that the petrol price increases of July 1st and August 5th are yet to transmit to transport and logistics costs. It is also evident that transportation of goods is fuelled by diesel trucks than PMS powered vehicles. The outlook is indicative of an increasing price level at a slower pace. This is borne out by the fact that core inflation (inflation less seasonalities) is declining.

Wider interest rate-inflation differential could force monetary tightening

Beyond the rising inflation trend, the faster pace of increase is a major cause of concern especially at a time when the economy is battling with severe economic contraction due to the COVID pandemic. This will put policy makers in a tight spot at the next MPC meeting. Moreover, the widening interest rate-inflation differential could force the committee to adopt a tighter monetary policy stance in the near term.

In the publication, the FDC Think Tank shares its thoughts on the impact of July’s inflation numbers on the economy and policy environment.

Do enjoy your read…