In line with our forecast, Nigeria’s headline inflation increased for the 10th consecutive month to 12.56% in June. This is 0.16% higher than 12.40% recorded in the month of May. More disturbing is the fact that the rate of change in the year-on-year inflation is increasing at a faster pace.
Is this the beginning of galloping inflation or a trend of moderation?
This is the question facing policy makers, consumers and markets. It is widely believed that the new electricity tariffs will now be in August and that there is likely to be another forex adjustment as the economy re-opens this quarter. Also, petrol price is back up to N145/litre. These initiatives will push costs upwards and could lead to higher prices.
However, aggregate demand is slowing due to the fall in consumer disposable income and spending patterns are tilted in favour of lower priced commodities. We expect this to taper inflationary pressures. Notwithstanding, the cost-push factors seem to outweigh the demand pull factors, thus suggesting that inflation could be fast approaching an inflection point. This will be a major consideration at the MPC meeting on Monday.
In this publication, the FDC Think Tank shares its thoughts on the impact of June’s inflation numbers on the economy and MPC’s decision.
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