Dear Subscriber,

The headline inflation report for January will be published on February 15, 2023, and we are projecting an increase in inflation to 21.42% from 21.34% in December. We expect core inflation to increase marginally to 18.73% from 18.49% in the previous month.

However, the food and monthly sub-indices are forecasted to decline to 23.64% and 1.52% respectively.

Typically, seasonal factors and post-festive income squeeze drive down prices at the start of each year. But 2023 is exempt for many reasons ranging from the pre-election jitters to money supply growth and the current cost of living crisis.

Declining global inflation is leaning in

Our survey shows that food inflation will decline again. This trend is consistent with global food disinflation. The FAO’s monthly index, which tracks global commodities prices, averaged 131.2 points in January, indicating the 10th consecutive monthly decline. However, because Nigeria is not a net food importer, the impact of the drop in global food prices may be less pronounced than in other economies.

Even though the CBN has raised interest rates cumulatively by 600 bps, inflation has only declined by 13 bps. This indicates the disconnect between the policy signalling rate and the effective interest rates in the economy. An increase in the anchor rate is usually followed by a general increase in the deposit and lending rates. Therefore, the impact of an increase in the interest rate on raising the marginal propensity to save and reducing aggregate household consumption in Nigeria has been ineffective. All TB rates fell below their highs in November 2022, with one-year TB falling to as low as 2.24% this month.

In the download below, the FDC Think Tank shares its forecast of January inflation and its impact on the economy.

Enjoy your read…