FDC ECONOMIC BULLETIN – JUNE 09, 2022 (Re: Headline inflation to continue its increase to 17.72% in the month of May)

[vc_row][vc_column][gem_button corner=”3″ icon_pack=”elegant” text=”DOWNLOAD PDF” link=”url:https%3A%2F%2Ffdcng.com%2Fwp-content%2Fuploads%2F2022%2F06%2FPre-inflation-Bulletin.pdf||target:%20_blank|” text_color=”#ffffff” hover_text_color=”#000000″ background_color=”#ddbd89″ hover_background_color=”#ddccaa”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Dear Subscriber,

The National Bureau of Statistics will publish its CPI report for the month of May next week. Our econometric model and market survey suggests a 0.9% increase in headline inflation to 17.72% in May. This will be the 4th consecutive monthly increase and the highest inflation rate in almost 12 months. A noticeable trend during the survey is that commodity prices are increasing at a faster pace for food items than in the non-food basket, reflecting the combined effects of seasonality, output shocks and war-induced global supply chain disruptions.

Flour and diesel are major costs components in the baking of bread, accounting for 70% and 15% of the total costs. The price of flour and diesel spiked by 76.7% and 209.37% to N26,500/bag and N750/litre respectively in the last year. This is likely to push upwards the price of a loaf of bread from N600 two months ago to N900. Inspite of the price surge, wages have remained static or even declined in real terms. Consequently, price resistance of consumers is increasing and many are switching to affordable substitutes. In some cases, as is empirically evident, we have noticed a drop in the quantity of goods demanded. Since price inflation is not a Nigeria specific phenomenon, there are indications that the price spiral is not likely to be short-lived.

Will the rate hike taper inflation?

Most global central banks’ have reluctantly accepted that this bout of inflation is no longer transitory but structural, hence, the recent increases in policy rates across countries. Nigeria has also followed with its own interest rate hike. Since it is widely believed that an interest rate hike is not sufficient in tackling cost push inflation, there will be need for other complementary policy initiatives. The recent jump in Ghana’s inflation is one example to hold in hand. Inspite of the 200bps hike in its interest rate, its headline inflation rose by 400bps to 27.6% in May.

The short-term outlook for local price inflation is likely to be elevated as the causative factors are both domestic and exogenous to Nigeria. Therefore, Nigeria’s inflation trajectory is likely to fall in line with global trends in the near term.

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