Dear Subscriber,

Nigerian headline inflation rose marginally to 22.41% in the month of May as food prices remained stubbornly high, exacerbating the financial strain on consumers. The food basket rose by 0.21% to 24.82% while the month-on-month index inched up by 0.03% to 1.94% (25.93% annualized) from 1.91% (25.5% annualized) in April.

Core inflation, which is inflation less seasonalities moderated by 0.08% to 20.06%. The decline in core inflation is cheery news but it is also important to note that the inflation numbers for May are not reflective of the impact of petrol subsidy removal and exchange rate unification.

Reforms heighten the risk of high inflation

Nigeria is currently embarking on structural reforms, including a fundamental change in an expensive petrol subsidy regime. It is also attempting to dismantle a cumbersome forex system which in theory is a floating rate but in practice is as rigid as it comes.

While the removal of petrol subsidy is likely to push up inflation by about 3% to 25.4% in the short-term, fears that exchange rate unification will also stoke inflation are misplaced. This is because imported commodities in Nigeria are currently priced using the parallel market rate. Therefore, a floating of the Naira is unlikely to have a major impact on the price level.

In the download, the FDC Think Tank analyzes the inflation numbers for the month of May and their impact on businesses and the economy.

Do enjoy your read…