Dear Subscriber,
Our market survey and econometric model indicate that headline inflation will decline to 21.28% in December 2022 from its current level of 21.47%. After months of stubborn inflation, which hit a 17-year high in November 2022, glimmers of hope seem to be emerging due to seasonalities. Our survey shows that food inflation will ease by 0.17% to 23.95% due to falling food prices as a result of the harvest season. However, core inflation (inflation rate after stripping out food and fuel prices) is expected to accelerate mildly to 18.42% from 18.24% in November. Our estimates also show that the pace of acceleration in core inflation has begun to taper. This is partially due to the stronger naira, consumer price resistance, and declining global prices.
How inflation has impacted households at different income levels
Consumption is a function of income. Thus, household consumption patterns vary across different income levels, with low-income households spending proportionally more on necessities. Typically, low-income households spend more of their total consumption budget on food and housing and less on leisure and household durables. All households have, nonetheless, experienced a “difficult time.” Soaring inflation is usually horrible for consumers as it shrinks their real income, makes them poorer, and leaves them with limited choices. With an average inflation rate of 18.76% in 2022 and squeezed income (static nominal but falling real wages, lower asset prices, weakened profit margins, etc.), more Nigerians have been plunged into multidimensional poverty (133 million people). As fuel scarcity appears to have become entrenched, consumers are jittery about the possible impact of an increase in the price of petrol to N300-N400 per litre in January.
MPC to maintain status quo in their next meeting
The MPC is scheduled to meet this month. Moderation in inflation and continued deceleration in output growth will increase the probability of empowering the doves in the MPC to fight for a slowdown in the pace of interest rate hikes or to maintain the status quo. It is expected that output growth will further moderate in Q4’22, raising concerns of a possible hard landing. Also, the earlier rally in short-term interest rates has begun to reverse, with 365-day Treasury bills falling to 8.49% from 16.0% in October. These developments will leave the CBN with no choice but to maintain status quo.
In the download, the FDC Think Tank shares its expectation of December’s inflation numbers and its impact on the economy.
Enjoy your read…
