Our time series model and market survey shows that headline inflation is likely to increase again to 18.2% in the month of May from 18.12% in April. The news of a marginal decline in April inflation was received with a certain amount of skepticism by analysts. This is because anecdotal proxies seemed to be running contrary to the data. Since we do not doubt the integrity of the NBS, the question on the minds of most analysts is if the drop was a blip or a trend.
We are also projecting an increase in the monthly inflation rate to 1.2% (15.34% annualized) from 0.97% (12.3% annualized) in April. Since annual inflation compares the basket of goods to that of the prior year, the monthly inflation is considered by some analysts as more relevant to current market conditions.
Possible rate hike as inflation spikes
The CBN at the last MPC meeting noted that the measures put in place to rein in inflation and stimulate output growth are beginning to yield results. If inflation increases again, the hawks in the MPC could advocate for a rate hike at the next meeting in July especially in view of the depreciation of the Naira in the parallel market.
In the download, the FDC Think Tank shares its estimates for May inflation and likely policy reactions.
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